James Governor's Monkchips

Why Sun Software Licensing is Like a Hermann Miller Chair

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I was reading a Register article today, citing Sanford C. Bernstein & Co. analyst Toni Sacconaghi’s claim Sun stock is current overvalued, when something resonated with me about the company’s current challenges in the market.

According to Sacconaghi:

“Our field contacts suggests that JES’s all or nothing flat rate pricing approach has not been well received in the field (some contacts view it as “confusing”, others as “not giving customers what they really want“), and that that Sun is currently rethinking pricing and the go-to-market approach for the offerings.”

Of course it makes sense for Sun to tweak the software offering and approach, to make it easier for folks to order a la carte rather than all you can eat, and we would expect Sun to make changes as it rolls the strategy out to customers through its sales force. Sun’s move to simplify software licensing is a radical alternative to existing methods and approaches. Change can be painful – especially when sales bonuses are on the line. if there is one thiong that makes sales people nervous its changes to the comp plan–this is especially true of those that are used to shifting tin.

What really caught my eye as i read the story was the claim that Sun’s pricing is “confusing”. That is pretty strange – flat rate per employee or per citizen pricing; what could be simpler than that? You can currently fit all pricing information for the company’s Java Desktop System and Java Enterprise System on either side of a mug… confusing? When the status quo is per processor pricing – you pay for software useage according the capacity of the hardware you buy?!

Lets get something straight – Sun’s model may not be completely granular, but it is not confusing. Can you count how many employees you have? There you go–that’s your capacity planning done. [Its enough to make you wonder if industry analyst firms that make money helping clients with software licencing negotiations could be briefing against JES because its not in their interests to see clarity and transparency in software licensing.]

But why would people see the new model as confusing? or not what the market wants? Because its a different model. Its a new kind of office chair…

RedMonk, perhaps unusually for an analyst firm, doesn’t believe that all technical decision making is fact-based. On the contrary we believe decisions are often based on bias and prejudice – the word bigot is not common in IT parlance for nothing. When we set the company up we wanted to try and get under the covers of decisions, to understand the narratives and myths that drive technology adoption and buying behaviour. Rather than looking at speeds and feeds and ticklists we try and understand the context in which decisions are made. That is one reason we cast a wide net in our reading and thinking – The Wisdom of Crowds, The Paradox Of Choice, The Tipping Point, and so on. Sociology, psychology and network theory are all important underpinnings for a rich analytical framework.

We’re certainly not alone in thinking that a lot of decision making is irrational. In his new book, Blink: The Power of Thinking Without Thinking, Malcom Gladwell puts forward an intriguing view of how choices are made. Do tall men dominate the CEO role in American corporations, for example, because tall men are more able leaders? That is the kind of question Gladwell forces us to ask. One of the key ideas in the new book is that focus groups hold back, rather than encourage innovation. Gladwell is cover boy for Fast Company this month, and he rolls out a powerful story about the Aeron.

What is the Aeron? If you don’t know then you then you obviously didn’t visit any silicon valley startups in the boom years… Its a chair basically. but oh what a chair. Interesting thing is, if the focus groups had their way it never would have got to market.

“Similarly dangerous is how first impressions cripple breakthrough ideas and innovation. Gladwell tells the story of furniture maker Herman Miller Inc. in the early 1990s, when it created a new office chair. It was made of plastic and mesh, and while it was created as the “most ergonomically correct chair imaginable,” he says, it was just plain ugly. Focus groups, facility managers, and ergonomics experts all despised it. Why? “They said they hated it,” writes Gladwell. “But what they really meant was that the chair was so new and unusual that they weren’t used to it.”

Gladwell argues that it’s a mistake to rely on the first impressions of customers who are inherently biased against the unfamiliar. Herman Miller execs went against the market research, stuck with their instincts, and created the Aeron, which eventually became the company’s best-selling chair ever. “What once was ugly has become beautiful,” he writes. Unless you’re willing to take that kind of leap, he says, you’re condemned to doing knockoff, me-too chairs.

I have a feeling that as the simplicity message begins to kick in, and as we have more and more software as a service being delivered, suddenly we’ll see a bunch of other vendors doing “knock off me too pricing”. Well that is, if they license the idea from Jonathan…

Patently absurd issues aside, it is quite clear to me that the JES and JDS pricing model today could be Aeron in the early 90s. That is, people are still thinking its ugly. Sun’s pricing models aren’t based on what focus groups say, but on an innovative approach to the market.

I, for one, have no plans to write the model off. or Sun for that matter.

Sun currently suffers from framing issues, a la George Lakoff. Don’t think of an Elephant. Don’t think Sun is expensive. It is only by reframing the debate that Sun can win. That is why its interesting to see the company trying to do just that. Sun- it couldn’t not innovate if it tried. How’s that for a frame?

Sacconaghi may be right about the poor quarter but that doesn’t necessarily mean Sun is overvalued. Its trading pretty low compared to its peers. If RedMonk analysts were allowed to own stock in tech companies i would consider buying–if you are an investor with a attention span longer than a couple of weeks you might do just that. If you are an enterprise decision maker or influencer its your responsibility to be well informed about changes in the way software is licensed [the facilities manager in the Aeron story]. Even if you don’t buy from Sun you should be aware of the model and its implications for your current middleware suppliers. Think Before You Blink Before You Buy.

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