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When will this drastic consolidation happen?
Papadopoulos: It's happening now. Perhaps a different question to ask is, "When does it become most of computing?" The total worldwide spending on information and communications technology is somewhere in the $2.5 trillion to $3 trillion range, and most of that is not spent on computing stuff. It's spent on people and software and a lot of services. At these very large computers, a (much larger fraction) of their spending is on equipment because they're operating in a much more efficient way...This new world is brutally efficient, and most of the dollars that get invested are going into actually getting work done instead of paying for organizations or people. In terms of (spending on) computing stuff, we'll see the crossover before the end of this decade.
A lot of people think that Sun is long on vision and short on execution. How is it that you guys are going to be supplying all this infrastructure when you've been struggling for the last few years?
Papadopoulos: At the core of what we do, we believe in investing in R&D and the return you get off of innovation. A lot of what we use the vision for is to guide that portfolio of investment. Our track record on reality meeting vision is really, really good. Our track record in being able to extract a lot of profits from that, or go in and monopolize a piece of the market because of that insight, ain't as good.
If you are inside Sun, you are getting a big earful that the R&D has to reshape to meet the reality--what I've been calling this brutal efficiency of that landscape. You can't sell soft products into a world that looks like that. It's: What's the performance per watt, per dollar, per rack unit? What's the productivity? What is its service level under load? It's much more about how one would think about approaching designing large-scale power plants that have to service the city vs. designing portable generators. It's that kind of holistic engineering that we're really trying to drive toward.
When you look at Sun and its competitors, are these brutal economies of scale also going to apply to the companies that supply these data centers in the sky with equipment? Do you think that also is going to be equally consolidated?
Papadopoulos: I think if you don't shape your engineering to meet the needs of this new class of end users, then basically what you will be doing is irrelevant and too expensive, and the end users will do it themselves. You have to be responsive to it.
But if the end users are the center of gravity of this new computing universe, why should they not be acquiring the computing equipment manufacturers and designers themselves?
Papadopoulos: If we look at other markets, every time that kind of extreme vertical integration has been tried, it fails. Basically once you own something from the engineering side, your choice gets really limited. If you look at analogies like in the, I think, the oil business, there are lots of people who go and provide tooling and specialization, who supply all of the majors--the Schlumbergers of the world. They do really well. People like GE or Rolls Royce who are providing aircraft engines, or Boeing, who are providing airframes into an equally consolidated-looking airline industry. If you want to make money in air transportation now, you would much rather be Boeing than American Airlines. I don't think that the model that Google pursues now is in the long term a sustainable one, particularly when you have technology underneath that moves so rapidly.
You're talking about Google rolling their own operating systems, running their own networks--a whole lot of customized computing technology.
Papadopoulos: Yeah, they get boards manufactured. I think they do that now simply because the traditional suppliers in the IT market are way off in terms of efficiency.
If you assume these six remaining companies have slightly different specialties, that raises the prospect that (customers) are going to be buying that from a monopoly. Monopolies are famous for their ability to raise prices at will. Is that a problem? Do you think this situation fosters monopolies?
Papadopoulos: I don't know whether we're going to go repeat the same mistakes that we made in IT, which is allowing people to come in and establish control points inside our IT architectures. It is in the power of all of us not to do that again. (The reason) why are we so vocal and progressive around open-source and communities is that it's really all about getting the switching cost down, so we don't end up back in that same situation where the whole economies of IT get distorted because of these very high switching costs.
I note with some interest that Salesforce.com recently announced that generic programming infrastructure?
...where you not only can run their own prebuilt services, you can write your own services. But you have to write in their special proprietary, custom language. As soon as I heard that, I thought of switching costs (the expense of moving to another technology foundation) and proprietary lock-in.
Papadopoulos: I think the service provider would want to provide barriers to people switching. The flip side is competition erodes that. The competitors to Salesforce.com will ensure that they will be able to extract whatever data they need to offer people to help them move from Salesforce.com to their service.