The story of Sun

The future looked bright when Sun first went public.

It’s a quintessential Silicon Valley story: A grad student at Stanford University comes up with an ingenious new product; someone with a bit more experience and cash takes notice, starts a company, and attracts big-name partners and customers; the company’s founders and shareholders make millions. Eventually other companies join the fray and a bubble forms, forcing those who want to survive to change. Some companies repeat the cycle over and over, continuing to innovate and grow. But for some, recovery doesn’t come so easy. In the case of Sun Microsystems (Nasdaq: JAVA), even the brightest engineers and the smartest entrepreneurs couldn’t stave off the competition.

Bright beginnings
The story of Sun Microsystems Inc. is a cautionary tale for entrepreneurs, tech or otherwise. The self-proclaimed “dot in dot-com,” Sun was one of the most influential companies of the last 20 years, making the day it sold to Oracle (Nasdaq: ORCL) in April 2009 what many people called a sad day for innovation. But, while it’s fair to say that Sun never really recovered from the bursting of the dot-com bubble, there are more lessons in the company’s rise and fall than just “don’t get caught in a bubble.”

Although it never failed to be innovative, Sun often failed to notice the innovation that was going on around it and thus in the late 90s found itself with real competition for products that seemed too expensive to justify with post-dot-com budgets. Companies such as Intel [Nasdaq: INTC], HP [NYSE: HPQ] and IBM [NYSE: IBM] were making cheaper, so-called “commodity” servers to compete with Sun’s high-end products, and many businesses decided they didn’t really need to spend the extra cash on Sun’s products. Meanwhile, the company was years ahead of the curve on open-source software, virtualization, cloud computing and “greening” the data center, but couldn’t figure out a way to make any of these enterprises profitable (not dissimilar to the challenge currently facing social media companies such as Facebook and Twitter).

In the end, Sun’s biggest downfall may have been its avant-garde spending habits during its meteoric rise—having had such extraordinary success for its first two decades in business, the company spent the next nine years trying to recapture that glory, spending 15 percent of its budget on R&D in the hunt for that one breakthrough innovation that would get it there. Meanwhile competitors such as Microsoft (Nasdaq: MSFT) and IBM were spending about 5 percent of their budgets on research and development. By the time it was acquired by Oracle in April, Sun was the world’s fourth largest maker of computer servers and the tech press was excited about its cloud computing capabilities and its thin clients. Yet its stock was hovering around the $8.50 mark, a steep decline from 2007 where it traded between $17 and $26, and a far cry from its high point in 2000, when Sun stock was trading at well over $200 a share.

Editor’s note: The author of this story made multiple attempts to interview executives at Sun, and upon learning that the questions went beyond Sun’s Eco-Responsibility Initiative, her request for interviews was refused. The Oracle deal wasn’t finalized at the time of this writing, and executives were sensitive to discussing details pertaining to it.

Sun rise
The original Sun workstation—the Sun-1 Workstation—grew out of the Stanford University Network workstation designed by Andreas Bechtolsheim in the early 80s. At the time, Bechtolsheim was a computer science grad student at the university and he didn’t like the fact that in order to use the campus’ computing resources, students had to book time on a handful of ASC11 terminals that connected to a single master computer. Bechtolsheim put together his own high-performance computer from readily available components. His work caught the attention of business student Vinod Khosla who enlisted his friend and fellow business student Scott McNealy. Because Bechtolsheim used the Unix operating system as one of the components in his workstation, the team enlisted software guru Bill Joy and in 1982 Sun (an acronym for Stanford University Network) was born. By 1986 the company had gone public and by 1988 its revenues hit $1 billion. In the 90s the company moved further into enterprise computing and when the venture dollars started flooding Silicon Valley, Sun was there to catch capital-rich start-ups with high-end servers.