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Sun software - Does it make diddly?

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Comment With Sun Microsystems on the block - and perhaps on the chopping block - for the past several weeks, it is probably a good time to take a gander at the family jewels: Sun's software business.

Sun likes to count downloads and the size of installed bases because the company's top brass believes this a kind of leading indicator for future revenue streams for commercial support, professional services, and other stuff productized by the company. And with so many key products open sourced - including home grown products like Solaris, Zettabyte File System, and Java and Sun acquisitions like MySQL, VirtualBox, and OpenOffice -the company places equal importance on the size of the communities that help create and debug these programs.

The open source hit parade at Sun's Software Group goes something like this. Number one, of course, is the Java Runtime Environment (JRE). According to sources at Sun, the company tracks it on a monthly basis, and in the 31 days of March, there were 76.6 million updates or installs of the latest JRE, and 11.2 million of those were for completely new installs.</p.

That works out to an average of 361,300 JRE new installs per day and 2.1 million updates per day. Sun says that the Java Development Kit (JDK) had about 27,000 registrations in March. The company did not provide cumulative installs for the JDK, but in its second quarter of fiscal 2009 presentation back in January, the company said that there were 180 million JRE installs and updates in the quarter (which ran from September through December) on Windows-based systems and that cumulative installs for the JRE are now approaching 1.3 billion on Windows boxes.

Number two on the Sun software hit parade is MySQL. The MySQL database has, according to sources at Sun, more than 100 million cumulative copies distributed over the past decade. There have been more than 3 million downloads of MySQL 5.1 since it started shipping last November, and the current run rate averages around 65,000 downloads per day. That's up from around 50,000 downloads per day when Sun shelled out $1bn in January 2008 to acquire MySQL.

It is hard to say if the download rate has been accelerated by Sun's acquisition of MySQL, or if the worsening economy has been a big factor. I would tend to think the latter to be the case. No one wants to pay for anything right now, and plenty of IT shops self-support with MySQL. Which kinda puts a damper on the whole Sun software business plan, but let's not jump ahead here.

Sun says that VirtualBox, its mostly PC and sometimes server virtualization hypervisor, is the third most popular program downloaded at Sun. Sun says that there have been over 11.5 million cumulative downloads of the program and 3.5 million registrations. The download rate is now about 25,000 per day, and it is accelerating. Sun bought VirtualBox's creator, Innotek, back in February 2008, and at the time the product had about 4 million cumulative downloads.

Sun doesn't talk about cumulative downloads of Solaris 10 and OpenSolaris any more, but I would think that these combined Solaris downloads, plus the relatively tiny number distributed on x64 and Sparc machines by Sun and other server makers, would make Solaris the third most popular software product, in terms of aggregate downloads. But Sun is counting current download rates in its ranking, so VirtualBox appears to be outstripping Solaris.

Through last October, there were 13 million cumulative distributions of Solaris 10. OpenSolaris might account for another 500,000 downloads since it shipped last year, and you can probably add a few million more Solaris 10 distributions between October and now. Call it 15 million cumulative distributions and you probably have the right number.

I know about OpenOffice, Java Enterprise System, NetBeans, and such, but I have run out of data. So let's talk about money.

Of course, cumulative distributions are not installed bases, and installed bases are not paying customers. And that is the rub as Sun tries to transition from closed-source, licensed software sales to open source distribution with paid-for support as a means of generating money from software.

In its second fiscal quarter financial presentation, Sun said that based on results in the first and second quarters of fiscal 2009 (from July through December 2008), its software business was humming along at a $600m annual run rate and growing at a 21 per cent rate (presumably on an annualized basis). In those six months, Java accounted for $101m in billings (revenues are slightly different since each software sale billed in a quarter is not collected in that quarter), MySQL accounted for $133m in billings, and Solaris licenses on big Sparc iron (which are not free) plus virtualization and management tools related to Solaris accounted for $80m in billings.

Sun's software sales are very choppy quarter to quarter and category to category, but over those six months in fiscal 2009, Java billings rose by 31 per cent and MySQL billings rose by 72.7 percent, but Solaris billings fell by 22.3 per cent.

But that is not really the Sun software story. Sun had $1.91bn in services revenues - which includes hardware and software support not included in the above numbers - in those six months, a big part of the is Solaris support contracts that come from a Sparc installed base that I estimate has shrunk from maybe 1.6 million machines at the end of 2004 to about 1 million Sparc boxes at the end of 2008. You can add all the x64 iron running Solaris you want to this, and it still won't fill in the gap.

Sun has never broken out the amount of revenue that Solaris drives, just like IBM never talks about how much of its hardware, software, and services business is really driven by mainframe accounts, but I suspect the Solaris effect is a lot larger than these numbers above suggest.

The profitability of Sun's software business - if there are any profits at all - is another matter, and apparently, it is one that killed the IBM deal to buy Sun last weekend. IBM had been trying to get a handle on Sun's software biz and specifically wanted to see what was profitable and what was not. Best I can figure, IBM is still waiting for those numbers. Maybe Sun's shareholders are too.

The open source distribution model cannot generate the kind of profits that Sun's shareholders became accustomed to in the dot-com boom, where every deal started out with a Sparc/Solaris server and moved on to Oracle databases. Red Hat, with an installed base of paying customers in excess of 2.5 million Red Hat Enterprise Linux through the end of 2008, according to Jim Whitehurst, the company's president and CEO, had $652.6m in total revenues for its fiscal year ended February 28, up 17.5 per cent from the prior fiscal year.

Subscription sales rose by 20.3 per cent to $541.2m, while services and training sales were up 52.1 per cent, to $111.4m. Net income for fiscal 2009 amounted to $78.7m, up a tiny bit. On average, that's $261 per installed license per year in revenue and $31.50 each in profit. (Yes, I am ignoring JBoss pretty much). It has taken Red Hat nearly ten years to get to this point - and I am only talking about since it went public.

I can't imagine how Sun's software business, particularly if customers abandon Sparc platforms or Sun has to basically give Solaris support away for free to cover the costs of Sparc chip and server development, can do any better than Red Hat has done on commodity x64 iron. And in the end, the decline in Sparc prices cuts Sun's profits, not matter how it dices and slices the categories and numbers in its presentations, just as the same economic pressures from x64 iron on the one hand and Linux and Windows on the other have done for all proprietary and RISC/Unix vendors.

There is no escaping the pinchers, other that to use the tool yourself. And that means Solaris and x64 are likely Sun's future and Sparc, for all its great engineering, is probably not. Java and VirtualBox and NetBeans and OpenOffice and all the things Sun likes to talk about don't mean jack in terms of revenues and profits. At least not the way Sun is running these projects and products today. ®

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