Sun shelves new Coke

Under the guiding hand of CEO Scott McNealy, Sun is quietly backing away from an assortment of new distribution models and putting renewed emphasis on its traditional integration partners. That stands in stark contrast with Sun's position earlier this year, when it said the future hinged on cultivating relationships with Web integrators, ASPs, and selling via online exchanges.

Consider, for example, what happened at CTS Inc., a Roswell, Ga.-based integrator that also resells Sun, IBM and Hewlett-Packard servers. CTS president Michael Malone says Sun diverted resources away from his company and added five people on the iXL account. The rationale was that iXL and companies like MarchFirst were part of a new breed of influencers, despite the fact that their sales organizations were undeveloped and that much of their revenue was derived from dot-coms.

"They created entire groups to go after these influencers," says Malone, who adds that Sun didn't include CTS among the influencers, even though the integrator has a strong say in which brand gets bought by its customers.

One year later, faced with a meltdown in the Web integrator market and its potential impact on sales of its servers, Sun is taking a giant step backward. Joe Womack, Sun's VP of Americas, Partner Sales, says the emphasis this year will be on turnkey solutions created by integrators and their partners.

"The issue for us now is how to shore up traditional relationships," says Womack. "We don't see customers buying over the Web. The average installation has 23 to 32 vendors. Nobody wants to manage that. What customers are looking for is a turnkey solution. Last spring, we said we were very agnostic about how they bought that solution. This year, we're going to be emphasizing turnkey solutions."

The vendor also will need to emphasize sales. Several Sun partners now report soft sales and say Sun is taking extra care to make its numbers this quarter. In the wake of so many dot-com failures and an unstable stock market, Sun investors appear nervous.

"Sun's interest is our interest, but I don't think Proxicom's interest is Sun's interest. And there's the whole issue of failing fast," says Mike Shook, president of Strategic Technologies. "The truth of the matter is that there's a rich opportunity to serve the old economy. Scott [McNealy] and his team have proclaimed ASPs and co-location, and they're not abdicating that, but the notion that the whole world is going the way of ASPs is not true."

Most systems integrators have been in business long enough to see cycles of vendors showering them with attention one year, then abandoning them the next. Most take the change of focus with a dose of cynicism.

"The pendulum was going one way, and now it's swinging back," says Brad Bishop, president of Avcom Technologies. "How long will this go on? Until the stock market goes up again?"

At the very least, it will last until Sun can stabilize its forecasting model. In mid-November, the company reiterated predictions to analysts that Q1 revenue growth would be in the high 40 percent range. Yet, the company blew out its Q1, showing year-over-year revenue growth of 60 percent.

The result was a backlog of Sun hardware, which frustrated Sun's partners. To make amends, Sun gave its partners a 3 percent rebate to make up for lost revenue. But instead of notifying only management within partner companies, it sent e-mail notifications to all of their salespeople.

"Now our salespeople are all asking if they can include the 3 percent rebate in their proposals," says one integration executive, who asked not to be named. "I just got a message saying Andersen Consulting is passing on the rebate, so can we do the same? This only makes it harder to compete."

At the same time, Sun continues to wrestle with how to combine its server-distribution scheme with Internet devices and networking hardware it acquired with Cobalt Networks. Sun has never had a mass-distribution strategy for such devices. "We're trying to figure out the best way to sell all of this," says Womack. But given the competition in this space, the clock is ticking.