A winning business model for the '90s.

• Author: McNealy, Scott
• Position: Sun Microsystems Inc.

The companies that succeed in the years ahead will be the ones that challenge and change conventional wisdom -- not just on the fine points of doing business, but on the fundamentals of being a business. And that means adopting a new business model that will satisfy the needs of customers, suppliers, and governments while still allowing the company to make money.

It is clear that the traditional business model, at least for the computer industry -- vertical integration, proprietary product lines, direct selling -- just isn't working any more.

I believe the business model pioneered by Sun Microsystems more than 10 years ago can provide some useful insights for companies -- in the computer industry and other fields -- that are interested in positioning themselves for success for the remainder of the 1990s. Sun's approach, considered radical just a decade ago, has proved its merits in this era of increased global competition.

In 1982, Sun Microsystems had a staff of seven and was headquartered in offices that were rented by the day. Today, analysts forecast Sun's revenues at $6 billion and the company is in the top half of the Fortune 500, with 13,000 employees and offices around the world.

In the early days, we succeeded because we had revolutionary products. Andy Bechtolsheim and Bill Joy, two of Sun's co-founders, launched the concept of open systems with the Sun-1, a computer made from standard off-the-shelf components and running the Unix operating system. Unix was powerful yet easy to "port," meaning that it could run on many different types of computers. This, combined with Sun's Unix-based Network File System (NFS), gave customers several important new capabilities. They could create networks of supercharged desktop computers, called workstations, which could share information. They could make every resource on the network available to anyone else on the network -- from any physical location on the network. And they could integrate newer technologies with existing systems, allowing them to take advantage of emerging technologies without sacrificing their previous investments.

For other computer vendors, open systems had an equally significant impact: it threatened to break their strangleholds on prized markets. Vendors of proprietary products had grown accustomed to enjoying what amounted to an unregulated monopoly. They had little competition, so they commanded high prices and set low standards for ongoing innovation. The advent of open systems introduced a new dimension of competition. We all know what happens when competition escalates: prices tumble, innovation soars. Consider, for example, the effect of cloning on the capabilities and pricing of IBM-compatible personal computers.

Initially, Sun's business model was no different from that of its rivals. We wanted to beat our competitors, grow internally, build manufacturing plants, create new distribution channels, acquire promising startups, and so on. What happened was that we realized we couldn't do it all alone. The market was vast, our competitors were huge, barriers to entry in some segments were overwhelming, we didn't have enough cash, and the pace of change in the industry was too fast.

Pure Instinct

What we did was purely instinctive. We reached out to other companies that could help us. We leveraged their expertise and specialty products by forming strategic alliances.

Our first partner was Fujitsu. We wanted to produce special high-capacity hard drives for our workstations, but found...