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Sun extends subscription pricing remit

Sun Microsystems is to offer subscription pricing for more of its products as part of an effort to ensure a steadier flow of revenue.

The aim is to generate as much as two-thirds of its revenue on a recurring basis, up from about one third today, said chief financial officer Steve McGowan.

"We'll establish a subscription model, a recurring revenue model, in as many places as we can, for hardware, software, services, through financing, through our storage division and all parts of our product line," said Scott McNealy, Sun's chairman, president and chief executive.

"To do the [research and development] we want to do, we need a consistent revenue stream."

McGowan added that recurring revenue can also be derived from support services, managed services and on-book leasing. Other software companies - including Microsoft, with its Software Assurance plan - have been moving toward a subscription model.

Sun already offers its Java Enterprise System on a subscription basis, for $100 per employee a year. Its N1 Grid Containers software, which lets customers partition a server using a single instance of Solaris, may be next.

Sun is considering several models for the software, including a price-per-server and a price-per-software container, said Jonathan Schwartz, executive vice president of Sun's software group.

No date was given for when further subscriptions would be introduced but it was suggested it would be sooner rather than later.

RedMonk senior analyst Stephen O'Grady said a subscription model that includes multiple products along with some services could benefit both Sun and its customers.

"Sun gets some surplus revenue, but it also loses some of the extraneous revenue that it might have got from billing the customer for all those pieces separately," he added.

O'Grady advised customers to look closely at which pieces of the offering they would expect to use and see if it makes sense for them.

As well as ensuring a steady revenue stream, one of Sun's top priorities is to boost its revenue after two years in decline. Sun's revenue flattened out last year, but financial analysts still not expecting growth in the 2004 financial year and revenue has yet to return to its "pre-bubble" level.

To generate revenue, Sun will focus on increasing the number of servers it sells, with the hope of selling storage, software and services with those systems. It will price its systems aggressively, taking advantage of some of the more than $250m it expects to save this year through cost-cutting efforts, mostly from savings on components such as disc drives, McGowan said.

Sun intends to offer more bundles of products that include extra hardware or software at no charge, McNealy said. The company launched a promotion for registered Sun developers in the US earlier this week which includes a Sun Opteron server if they sign up for a three-year subscription for its Java tools, priced at $1,499 a year.

Schwartz added that Sun will begin charging developers who download its version of Solaris for x86 chips, which include processors from Intel and Advanced Micro Devices.

"We did about 500,000 downloads of Solaris for x86 last year. For the most part that was for no charge, because we wanted to build a developer community. You'll see us start to create a subscription model that lets us harvest some of the opportunity there and build value into the maintenance and upgrade cycle," he said.

"The bottom line is, we're going to move the entirety of our software business to a recurring revenue model."

James Niccolai writes for IDG News Service


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