The Ovum View (cont'd): When iPlanet starts orbiting Sun...

Ovum forecasts that the worldwide market for application server products and services will grow from just over $6bn in 2001 to more than $26bn in 2006 - an attractive opportunity for Sun, with the iPlanet Application Server. IBM (with WebSphere) and BEA (with WebLogic) currently dominate the Java application server market, while Microsoft dominates the non-Java market, with iPlanet a distant fourth.

For Sun to make significant inroads into this market, it must take market share from both BEA and IBM. This will require significant investment in sales and marketing at a time when Sun needs to cut costs - as indicated by the nine per cent cut in its workforce announced recently.

Sun must tread carefully. It is still primarily a server company and BEA WebLogic, for example, is the most widely deployed application server on Sun hardware. As Guy Norgrove says: "The issue is, if we [as the software arm] don't unite with hardware and with services, iPlanet will be isolated. But if we do unite, we can offer our customers a much better value proposition. So I think everyone in Sun will realise there is an opportunity here, and there is strength in numbers."

This implies that some of these deployments may be at risk, introducing the potential for conflict between iPlanet and the hardware divisions.

Aggressive competition with BEA and IBM - Sun's key allies in the Java versus Microsoft battle - risks deviation from the Java2 Enterprise Edition (J2EE) standard in a drive to differentiate.

Within the last month, HP announced it plans to bundle the Bluestone Total-e-Server with its Unix operating system in early 2002, a strategy that has proved very successful for Sun's archrival Microsoft. In March 2001, an iPlanet group marketing manager stated that bundling of iPlanet with Solaris is 'inevitable' - a statement that was refuted within two days by the vice-president of Sun's Solaris unit.

If further evidence were needed, Pat Sueltz, executive vice president of Sun's Software Systems Group, stated: "They [the operating system and application server] will be integrated together next year." If the application server is bundled, it seems likely that this will extend to the web server and directory server, with which it is tightly integrated.

Will it be free? Solaris is the dominant Unix operating system, and Sun clearly sees the opportunity to increase market share through bundling. A debate is currently under way within Sun to take bundling to the next level and make it available at no charge. Such a strategy has proved successful for Microsoft but it is questionable whether Sun has the resources, especially in the current climate, to support development of a competitive product without the supporting revenues.

On 17 March 2002 iPlanet will become a software division of Sun and by the end of the same year, if not sooner, the application server will be bundled with Solaris.

The loss of the financial support from AOL and the drive to cut costs within Sun should raise serious doubts in the minds of existing and potential customers and software development partners.

Does Sun have the resources to develop and maintain what is a broad portfolio of products, especially as a significant number of the original Netscape software developers have departed since the formation of the alliance? Now is the time to obtain firm commitments from Sun, in terms of product roadmaps and investment in future development.

You must also carefully monitor the ongoing debate regarding the free bundling of server products with the operating system - either ongoing development will suffer, or the lost revenues will be generated in other ways, for example, through increased support and maintenance costs.

With Sun focusing engineering effort on tighter integration between the application server and Solaris, the future support for non-Solaris ports must be questioned. Equally, if, as has been stated, the operating system is being enhanced to provide tighter integration with the application server, it may compromise the operation of competitive products from the likes of BEA and IBM. Again, these issues must be raised with Sun now.

For iPlanet's competitors, bundling of iPlanet software with the leading Unix operating system poses a significant threat, especially if the proponents of the 'no-cost' option win the debate. Sun's revenues are dominated by hardware sales, and you must exploit this to your advantage. You must highlight that the decision on hardware platform is secondary to the decision on software platform. Therefore, if Sun's engineering effort results in a sub-optimal platform for your software, it could mean lost revenues, not forgetting the opportunities to raise fear, uncertainty and doubt in the minds of existing and potential customers.

For more information see http://www.ovum.com