Schwartz: Hardware margins not sustainable

Sun COO, Jonathan Schwartz, has predicted hardware will no longer be a sustainable revenue source for the channel, claiming the industry needs to look towards providing value-added services and holistic technology solutions.

Speaking to IDG during a recent visit to Sydney, Schwartz said the future for its partners and rivals would be in creating services that looked at the concept of IT as a commodity, rather than a technology acquisition.

"All of today's commodities are based on a zero-margin concept," he said. "But they are our core businesses - electricity, gas for example. The largest businesses are those that create value based on these commodities.

"And the real commodity in our industry is bandwidth."

Schwartz said the industry was moving towards a scenario where customers bought service, and the hardware was free. Similar to the mobile telephony trend today, users would pay for a subscription to the provider's service, and get the handset bundled in.

His comments came on the back of Sun's recent announcement that it would look to introduce a subscriptions model for its IT solutions based on usage, rather than the sale of hardware.

Sun's local software business manager, Laurie Wong, said this would mean customers could turn their IT services off and on as required, while paying on a usage basis.

Using the vendor's Java Enterprise System (JES) licensing scheme as a starting point, Wong said customers under the future subscriptions model would be signing up for the whole solution.

With the JES model, charges are based on a license for each employee per year. Organisations are then entitled to unlimited access to the software and support services. Likewise, charges for future subscriptions models would be based on an hourly rate, Wong said.

"This means customers don't have to think about the capital purchase or procurement of hardware," he said.

But Wong insisted Sun would still be using its channel to deliver the subscriptions model.

"Our partners would manage the transaction element," he said. "They will move away from the rollercoaster revenue ride. Today, if they sell 100 CPUs, they receive the money upfront. With the subscriptions model, revenue is more even."

Sun is yet to release a roadmap for the subscriptions model, but Wong said the JES version only took six months to bring to market.

Alstom IT national sales manager for Sun, Danny Harwood, said he was supportive of the subscriptions model.

Asked if he was concerned the channel would lose out from the shift away from traditional modes of IT procurement, Harwood said it would actually provide them with a more predictable revenue source.

"Somebody still has to install the equipment, or sell to the customer," he said. "The opportunities for the channel are there - they are the same opportunities that exist today. Not only will the channel sell the solution, but they'll secure an annuity revenue stream."