Where Sun Means To Be A Bigger FireballRobert D. Hof
When Northwest Airlines Inc. acquired Republic Airlines Inc. in 1986, it bought a big headache. Northwest had to track revenue from nearly twice as many tickets but couldn't afford new mainframe computers to automate the process. Finally, the company settled on a better alternative: a network of 600 souped-up desktop computers from Sun Microsystems Inc. With the workstations, the airline can automatically analyze every ticket for proper pricing instead of just checking 10%, as it had in the past. That capability, which lets Northwest bill travel agents for every underpriced ticket, will help pay for the recently completed multimillion-dollar Sun network in just a few months, the airline says.
Workstations aren't just for the folks in engineering or programming anymore. Dozens of businesses are finding out what Northwest discovered: They often can do more for less with networks of workstations than with giant mainframes. Now, workstations are surfacing everywhere, from Wal-Mart Stores Inc. to Chicago's Bureau of Parking. "There are very few applications you can't use workstations for," observes Thomas G. Grudnowski, the Arthur Andersen & Co. consultant who helped Northwest come up with its Sun network.
'INTO A VACUUM.' Indeed, the new push into general-business computing is one reason why workstation sales continue to expand faster than sales of PCs, mainframes, or minicomputers. Although a sluggish economy slowed workstation growth to 21% last year from 1989's torrid 38% rate, market researcher Dataquest Inc. expects sales to increase 24% this year, to $9.2 billion. The fastest-growing part of the market will be customers outside engineering, programming, and technical departments. These commercial buyers are expected to buy $920 million worth of workstations this year--nearly 50% more than in 1990 (chart). "We're getting sucked into the commercial marketplace like air into a vacuum," crows Sun Chief Executive Scott G. McNealy.
Sun, the market's biggest player, has the most to gain from the expansion. In just nine years, the company, based in Mountain View, Calif., has mushroomed to $2.5 billion in annual revenues. It has 29% of the market and, because it was an industry pioneer, has established strong relations with the most sought-after customers and the most important software developers.
But the move into the broader, commercial computing market pits Sun against bigger computer makers -- on their home turf, not Sun's. One sign of that: When IBM brought out its RS/6000 workstations last year, it took just six months to sell $1 billion worth of the machines, and it says 34% of the sales were to commercial customers, compared with 30% for Sun workstations. And PC hotshot Compaq Computer Corp. is getting ready to jump into workstations, undoubtedly with an emphasis on the commercial portion of the market. Says Alex. Brown & Sons Inc. analyst Mark D. Stahlman: "Workstations in the commercial world are the big brass ring for the early 1990s."
It's easy to see why the computer industry's heavy hitters are fighting Sun for a chunk of the workstation business. When a business customer buys a workstation, it usually means that IBM, HP, Compaq, or DEC lost the sale of another type of machine, most often to Sun. A recent Prudential Securities Inc. survey of workstation buyers showed that 54% of them were replacing minicomputers, 22% were scrapping mainframes in favor of desktops, and 24% were upgrading from PCs. The shift is painful. When IBM revealed on Mar. 19 that its first-quarter earnings would come in well below expectations, it blamed the shortfall on poor sales of all its computers--except workstations.
HEADSTART. Still, to conquer the commercial market, workstation makers--even Sun--have some spadework to do. For one thing, they have to persuade software developers to write programs for their machines that will appeal to commercial buyers. Sun already has a headstart: WordPerfect Corp. and Lotus Development Corp., for instance, have converted their popular PC packages to run on Sun workstations. Sun's momentum in software could make it tough for rivals such as Hewlett-Packard Co. to grab attention from top developers.
Software isn't the only challenge. Sun and its workstation rivals also have to find a way to get their machines out of the warehouse and into offices. On the one hand, workstations are not simple enough for Compaq's legions of computer dealers to sell effectively. But workstations also don't carry the fat gross margins needed to pay for a big corporate sales force, such as the one that IBM maintains.
After years of tinkering with the problem, Sun has come up with a solution that's somewhere in the middle. It still sells most of its workstations and networks to big customers through its 1,000-person sales force. And nearly half of its sales are made by "value-added resellers," which package specialized software with Sun machines. But many commercial buyers prefer to purchase products through computer dealers, with whom they have dealt for years. So last July, Sun handpicked 200 dealers from three retail chains and trained them to sell workstations. Other workstation makers will likely follow the model: Steven P. Jobs's NeXT Computer Inc., for instance, is busy recruiting 100 dealers to sell its workstations (box).
GREAT COMMUNICATORS. Developing an effective, independent reseller channel for workstations may take years. Sun says it will sell only $30 million worth of its machines through dealers in the year ending June 30. In the meantime, there's plenty of demand to keep the market growing. Corporate America can't seem to get enough of workstations, especially for jobs that require quick handling of lots of information from several sources. Workstations can do that because their reduced instruction-set computing (RISC) chips make them far faster than PCs, especially for graphics. And the Unix operating-system software, which virtually all workstations use in one form or another, is designed to perform several tasks on-screen at once. Unix also lets workstations easily communicate on a network, even with machines made by different manufacturers. And while there are still several types of Unix, there's a growing array of mainframe- and minicomputer-level software that will run on the operating system.
Wall Street was the first nontechnical industry to catch on to workstations. Most big trading houses now use them on the trading floors and in the back room to perform complex analyses on investments and market data. Other industries are quickly following suit. American Airlines Inc. recently moved its crew-scheduling program off an IBM mainframe and onto a network of workstations from MIPS Computer Systems Inc. It lets American schedule its 25,000 crew members in six hours, a job that used to take 24. The airline says that over five years, using the MIPS setup will save it $8 million. Now, American is getting set to add a larger workstation network for flight scheduling, says Thomas M. Cook, president of the airline's operations-research subsidiary.
SCOFFLAW SLEUTH. Even government is getting in on the workstation act. Chicago boosted its parking-ticket revenue from $34 million in 1989 to $40 million in 1990 by using Sun workstations to streamline collections. Now, workers handle digitized images of the tickets, not pieces of paper. As a result, a parking violation can be processed in three days, instead of the three months it sometimes used to take.
As prices come down, other big commercial buyers are expected to join these pioneers. And prices are falling fast: In the past year or so, Sun, DEC, HP and NeXT have all introduced workstations priced under $5,000. That's less than some PC makers charge for their speediest machines, which can't match workstation performance. "The most interest in Sun is coming from PC users who have run out of power," says Stephen P. Basile, engineering service manager with ERI Inc., a commercial reseller of both PCs and workstations based in Hauppauge, N. Y.
Workstations aren't about to blow older types of computers off the track. Even at $9.2 billion, they're a fraction of the PC industry and far smaller than mainframes and minis. But interest in workstations by commercial customers means that IBM, Compaq, and the rest are going to make sure that Sun has to work hard to keep its No. 1 spot. Indeed, even though CEO McNealy likes to boast that "the world is our oyster," with all those rivals taking him on, it looks as if the pearl inside is very much up for grabs.