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Jessica Davis:So, Bill, now that Sun is competitive in the blade server space, what’s the company planning in terms of incentives to the channel to gain market share?

Bill Cate:Well, the blade announcement is pretty exciting to the channel. They’ve been waiting for it for a while. And we’ve come up with some products that are truly extraordinary in terms of competitive position as usual, you know, double the memory capacity and I/O throughput. So there’re some outstanding technical reasons for the channel to really be interested in that product. There’s a lot of anticipation around it, which is a good thing. We think the best way to drive demand initially with blades is access to equipment. The partners have said that’s the number one demand-generating tool that they can use. So we’re putting a lot of focus on seed units and try-and-buy for partners to get systems in their customer accounts because we think that will be the highest velocity to get these products in the market. That’s the number one thing we’re focusing on with blades.

Davis:Your CEO, Jonathan Schwartz, talks a lot about open source. What is Sun doing in the channel these days to back that up?

Cate:Well, open source is really a key part of our strategy overall, and Jonathan writes about it in his blogs and it’s a key part of the strategy. I think the biggest benefit to not only our partners but our customers is with Sun being probably the number one investor and provider of open source code in terms of open Solaris, open Java and other technologies that we provide. The biggest advantage to the channel and the developer community is that it’s going to drive a lot more demand for our technologies in the marketplace. Partners rely very heavily on vendors that help them differentiate in the market place, and we think that with developers building on our open source technologies, it’s just going to create a lot more opportunities for the channel. So your question was “what are we doing to help the channel?” That’s basically what we’re doing. We’re allowing the technologies to be open sourced, and it’s just going to drive a lot more market presence and demand for those products in the industry.

Davis:How is Sun doing with the StorageTek acquisition?

Cate:StorageTek’s doing great. With any acquisition of that size, the back end implementation of infrastructure and systems and sales people is a very difficult process to get through. I would like to say we have exited through that process successfully. We have all the products integrated into the price list. One of the accomplishments that I’m probably proudest of is the integration of what we call the legacy StorageTek partners who are now Sun partners. So all of the StorageTek partners that weren’t Sun partners before have signed Sun agreements and they’re all participating in the Sun Partner Advantage Program. I think the integration of StorageTek is absolutely complete. We’ve maintained the StorageTek brand because of how it’s perceived in the marketplace.

Davis:Were you able to add many partners through this?

Cate:We added the majority of the StorageTek partners to our portfolio. I’d say globally, we’ve added somewhere around one hundred to 120 partners to the list. The other thing I’d like to add is that it really rounded out some programs that we call Storage Elite. We had that before. But by adding the product lineup from StorageTek and what that brought to the portfolio, and partners that specialize in storage, it really added a lot more beef to that whole Storage Elite partner type. Now we have more partners that truly specialize just in storage, and storage management and service delivery around storage. I don’t want to paint the picture that it was all easy and rosy. The transition was a difficult one. It is any time you have an acquisition and an integration effort of that size.

Davis:Are there plans along the lines to bring those partners up into other Sun product areas?

Cate:That’s a very interesting question. It’s happening dynamically, so some of the partners are choosing. That’s the beauty of the Sun Partner Advantage Program — flexibility. They can choose to specialize in whatever they choose to at Sun. We’re managed under what we call the Four S Strategy: systems, storage, software and services. So what we’ve found is that some of the StorageTek partners that are purely focused on the storage space are staying there, and that’s totally fine with us because we really need to continue that expertise in storage as well as taking our storage off platform. So not just on Sparks, Solaris or Sun Server platforms. We want to sell those great technologies on other platforms as well. But many of the partners have come on board and seen the opportunities in the other product areas, be they software, or systems or other services to deliver. So we’ve seen quite a few of them choose to take the competencies and participate in programs beyond just storage.

Sun Sets Channel Strategy.

Davis:A recent report from the financial analyst firm Sanford Bernstein a month or two ago was a little critical of some changes Sun has made to the channel in order to improve the company’s overall profitability. Some of the things that were mentioned were reduction in inventory days, cuts in service renewal commission and that direct online promotion. What have you been doing to mitigate some of the negativity from some of these things?

Cate:Well, a tremendous amount. We took that report very seriously. I would like to say that I would not have characterized some of those topics in the report that way. Not to isolate each one and go through them, but we took it very seriously, and we’ve responded to every one of them. I kind of think of that report in Sun Internet time; that is old news right now. That was, I think, back in April. You know, the inventory levels is all part of an optimization strategy to streamline our supply chain model. It’s not a matter of weeks of inventory available. It’s a matter of on-time inventory for the end-user customers and keeping those service level agreements where they need to be. So that’s just an ongoing strategy that everybody benefits from. We’re announcing some significant enhancements to our services program model under the Sun Partner Advantage Program that addresses nearly all of the concerns that our partners had with our services margins. We also added things like registration for services. The timing of this was perfect, because our partners were very concerned with the deal velocity process. It just took too long to do registration of opportunities so we fixed that. About two weeks ago we launched a program called deal registration. It is a program underneath what we’ve had in place for about five years called opportunity registration. Opportunity registration was designed for longer term teaming agreements. Well, what we were missing was the quick-turn deal registrations that partners are truly adding value, but they don’t want to wait a week to get an approval on a teaming agreement. What they want is a few hours to get an approval on a deal registration. So we launched that a couple of weeks ago in the U.S., and it’s going extremely well. Some of the more critical partners are actually sending thank-you notes to us over the Internet, and that’s always nice to get. My plan and my new role in global channels is to take that kind of a process now and try to make it pervasive on a global basis rather than just the U.S. You know, there were a couple of other things in that report, and, you know, we’ve addressed all of those. So I’d like to think that that report is history. We’ve addressed them, and like many things at Sun, if something comes out, we’re wide open, we listen and we respond quickly. The 21st anniversary thing, that was on there; that was a promotion to drive demand and awareness and new customer accounts. We just did it wrong, and within 24 hours we responded immediately and made that channel friendly. So we’re very open to listen. We took it very seriously. Hopefully, the next Sanford Bernstein report comes out and says these guys are really on top of things.

Davis:As a global strategy guy now, what trends are you seeing in the channel and what’s Sun doing to take advantage of them?

Cate:That’s a great question. I took the word strategy out of my title because so many people own strategy, right? So the title that I’ve been using is Global Channel Planning and Programs because I’m all about execution, and I think that’s what the partners really want. We all have enough strategy. So trends in the channel tend to be, year over year, pretty similar. Partners want to deal with a vendor that they have a lot of confidence in and that gives them technologies that they can differentiate with. They want vendors that have great R&D. At the end of the day, they want to make a lot of money selling those technologies and wrapping services around them. However, some of the key trends that we’re seeing from the technology side are consolidation, virtualization, Web building, Web properties, and managed services (that’s a real growing trend for our partners). Moore’s Law really talked about how computing changes every so many years, and you can track it graphically. Well, now it’s not computing so much that we’re tracking as a trend, but the growth of the network applications; applications that are going to demand huge network infrastructures to support it. And, obviously, this is called redshift in the marketplace. We think the opportunity for partners here today is being experts in that network infrastructure and participating in that redshift of these massive application requirements on the network. We’re also seeing partners like ASPs that are delivering software as a service over the Net. And that’s another way to take advantage of these application requirements on the Internet. I think redshift is a big trend we have to watch very carefully and make sure that our current channel is participating in that as infrastructure experts, but also capturing the mind share of the application service provider partners that are building these infrastructures to deliver this software as a service. Those are some of the trends we’re tracking.

Sun Sets Channel Strategy.

Davis:And what’s Sun going to do to take advantage of those?

Cate:Well, hopefully everything. Hopefully we’re going to be the primary OS and systems and storage platforms for the infrastructures that those Web applications sit on.

Davis:Are there MSP platform opportunities for Sun?

Cate:Absolutely. We think those are going to be some of the primary delivery partners for this software as a service application.

Davis:And will Sun be making any changes to its channel program coming up in response to any of these?

Cate:You know, it’s more than evolution. The biggest news around our channel today is all under the umbrella of the Sun Partner Advantage Program, which launched a little over a year ago for our developer community. On July 1 we are officially launching the Sun Partner Advantage Program for our reseller community. So it’s actually been launched already but it goes live on July 1. Now, what does that mean? It means that we will have global standards around competency training. We’ll have global contract vehicles that partners can leverage. You’ll have progressive membership levels, associate, principal, executive level partner program levels that they can participate in. And whether you’re in Beijing, or Germany or Arizona, a partner will be operating under the same principles and guidelines. Now, that’s the framework part of it. I think the more interesting part is the premise of what the program’s built on. It’s built on paying partners for their investment and performance. With the progressive membership levels comes the ability for partners to earn additional compensation for those investments and performance. Toward the end of July, we’re rolling out Sun Partner Advantage for services. I mentioned this earlier when we were talking about the Sanford Bernstein report. Some of the enhancements we’re making to services are that we’re simplifying everything dramatically. Partners will be able to quote much easier. We’re reducing the number of service part numbers. We’re making the service pricing more competitive. It will significantly reduce the amount of exception pricing and the whole process around it. But the most interesting part is that partners will have the ability to earn additional discounts right up front. Our partners have said we like rebates, but what we really like in the services business are rebates right up front. And we want you to recognize the value that we provide. So now it’s going to be automated with base level discounts for services. However, if it’s a new services sale, which we want to incent, or new service on products that have never been on service before, there will be an additional discount. If you’re a partner that does service renewals, there’s a discount. But if you’re a partner that does really well with service renewals and meets certain target performance characteristics every quarter, there’s even an additional discount right up front, built into the system. We want to enhance the ability for partners to earn more in other kinds of services. For partners that do that, they’ll automatically earn additional discounts at the point of sale. Other co-delivery options —like managed services or installation delivery, or in some products there are certain programs for our partners to actually do delivery of our maintenance services — those will all be automated. So when a partner goes into quote services, depending on their investment in Sun and how they’re performing against key metrics, that will determine the discounts that they earn. It’s all about paid for value. The partners that are really doing well and performing well will do quite well with that program. It’s all part of the SPA framework.

Davis:Switching gears again, Dell recently has made a lot of noise moving into the channel and into retail. What do you think that means and what do you think it will mean for Sun?

Cate:Well, Jessica, I might want to suggest that you talk to Dell about their channel strategy because they probably know more about what they’re doing. I can only say that from my perspective, the verdict is very much out on that. I can tell you what our strategy is: we’ve always been channel friendly from the beginning. I’ve been at Sun for 18 years and been in the channel for nearly 15 of that. From that time frame, our mix of channel revenue has always been somewhere between 60 and 80 percent, depending on what country you’re in. You can’t get more channel friendly than that. We’re not moving our products into retail store shelves, Wal-Marts and things like that. I’m not sure that’s a friendly strategy to what I call a value-add channel. I think the operative word here is that partners are looking for vendors that are consistent, predictable, someone you know, good relationships and engagement with the sales organization, technology IP, research that comes from the vendors so they can count on new and creative things coming out all the time. I think I’d rather focus on what we’re doing, which is consistent focus and leverage of the channel.