“My dude, I love your blog, and even enjoy the funny pictures you do of me, but you’re missing the point on this Windows deal. So let me explain. Our industry is heading toward an enormous convulsion as we shift toward a utility computing model. Instead of selling to thousands of big enterprise customers and millions of SMBs, we’ll be selling to a very small number (like maybe a few dozen) of global utility computing operators. That contraction will cause great pain among IT providers as our customer base rapidly shrinks. Buying power will be concentrated in the hands of a few savvy and powerful customers who will demand low prices and quickly drive the cost of any new innovation toward zero, so that the generously wide new-product profit curve we’ve been accustomed to, and which we’ve used to fund new development, will be radically foreshortened. Instead of selling excess capacity and unnecessary duplication to thousands of witless IT managers who pay too much for our products, we’ll be selling at thin margins to operators who will wring every bit of capacity out of their systems.
“The upshot of this is that IT vendors will also consolidate and only a few large IT vendors will survive. We hoped to be one of them and have talked a good game about how we would do that. Privately, however, we’ve known for some time that this is impossible. Sun needs to be sold. We don’t have the breadth to survive in this new environment. We’ve been shopping the company hard. That’s been Scott’s job. But the list of potential buyers is pretty small. We’ve had loads of out-of-the-box type conversations with players like Wipro and some European power utilities (they see computer utility operation as a natural evolution). But let’s be honest. Our best fit is IBM. We know it. They know it. We’e been in and out of talks. The issue is price. Not long ago we thought we had a deal, but at the last minute they balked on us. Classic IBM tactic, one they use when they’re snapping up small consulting firms; right at the last minute they walk away and then come back but only at half price. But we’re not going for it.
“So how do we bring them back to the table? This is where the Borg comes in. There is only one thing that IBM cares about and that’s the Borg. They’ve spent the past fifteen years serving as a private patron for any initiative that could cause grief to the Borg. Java, ODF, Open Office, Linux. They’re a bit, shall we say, myopic about this. Like, obsessed. Like we were there recently and they didn’t know you guys were still in business. No offense because you know I’m a huge Mac fan. I’m just saying. All they want to talk about is the Borg. Steve Mills sits there rolling ball bearings in his hands and mumbling about Gates.
“So our talks broke down. Scott says, What’s the one thing that will bring them back to the table? The answer is we make it look like we’re getting in bed with the Borg, that we’re surrendering. We make it clear to IBM that we don’t want to do this, that it’s very distasteful to us but we have no choice, and that if they were to buy us we would, of course, shut down the Windows server program. That’s what the Original Borg is obsessed with now. They’ve surrendered in PCs and sold off the division. Next battle is the low-end server. They’ve put billions into propping up Linux in that market only to find out, in the most recent IDC numbers, that Windows is actually growing faster than Linux in that space, and on a much larger base. That’s right. Windows is gaining market share. Linux had it easy when the game was about winning away Unix customers with a promise of 90% cost reduction. Now those deals are all done and the Linux guys are going up against Windows and there’s no cost advantage. Same for us with Solaris on Intel. There’s no real cost advantage against Windows. Pennies, maybe. But nothing that can swing a deal. The only advantage Linux has is some kind of religious thing but most IT managers are atheists. And some of them, believe it or not, actually like Windows.
“Anyway. That’s the game. IBM sees the tide rising. PCs are already swamped and underwater, totally gone. Low-end servers are going. They need us. But they’re cheap. So we make a big deal about how we’re joining up with the Borg, and pray to God that IBM buys us. We’re pretty sure they’ll do it. It’s worth a lot to them to keep the Borg from gaining any more market share. And please don’t hate us on this. It’s all part of a plan, and I think it’s going to work. We have not sold out the rebel alliance. We will live to see the Borg destroyed. Together, with you on the desktop, and us and IBM and Red Hat and Novell on the server, we will win this war. Feel free to publish this email. I’ll be saying something very much like this on my own blog, once it gets cleared by PR. Much love, as you guys say. Namaste. Peace out.”