Dell and Sun Microsystems, rivals in the computer hardware market, unveiled on Wednesday a co-opetition agreement in which Dell would sell servers preinstalled with Sun's latest Solaris operating system and then funnel customers to Sun for support and services.
The multi-year distribution agreement launched at the Oracle OpenWorld conference in San Francisco is the latest example of how the computer industry is being driven by corporate demand for openness among technology vendors. Dell agreed to sell PowerEdge servers pre-installed with Solaris 10 after seeing an increasing customer demand for the OS on its servers.
For Sun, the deal gets Solaris in Dell's high-volume sales channel, which could become a significant source of revenue.
Under the agreement, Dell would keep all revenue from server sales and resell Sun services and support packages. Revenue from the latter would be shared between the parties. Dell customers, of course, could go directly to Sun to buy multiyear support subscriptions, which include patches and upgrades.
At first glance the deal may seem odd, since Dell gets the hardware sale, while Sun only gets revenue from the support contract. But the latter company sees a chance to start a dialogue with the millions of Dell customers downloading Solaris, Richard Green, a VP and general manager in Sun's software business, told InformationWeek.
To date, 12 million Dell customers have downloaded either Solaris or OpenSolaris, the open source version of the OS, according to Green. Most of the downloads have been for Solaris. About 70% of Solaris installations are on Dell, Hewlett-Packard, and IBM servers. Sun has a partnership with IBM, but not one with HP, the biggest seller of x86 servers, which is what Dell will sell.
Without the latest partnership, it's unlikely Dell customers would contact Sun. In addition, spreading Solaris further in the market through Dell could lead more developers to build applications for the platform. Because the OS is developed by Sun, companies interested in buying Solaris servers in the future could choose to contact Sun.
Also, the deal does not prevent Sun from trying to sell its hardware to Dell customers. "There's nothing preventing Sun from pursuing opportunities with those accounts as well," Green said.
John Spooner, analyst for Technology Business Research, agreed that the partnership has the potential of benefiting both parties. For Dell it fits into its strategy of pleasing the customer. "If the customer wants Solaris, then Dell is saying we'll give you what you want," he said.
For Sun, it's a potential increase in high-margin software sales, something the company could use more of, given the disappointing revenue numbers in its recent earnings report. "This is all about generating more revenue around Solaris," Spooner said. "Software services are very close in profitability to Sun's high-end hardware."
Another advantage for Sun is the ability to know who wants their software. If companies download Solaris over the Internet, Sun may or may not learn who they are through the registration process. "Sun knows the person who buys from Dell and IBM, so their ability to market to them goes up dramatically," Spooner said.
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