June 20, 2007 8:42

IT still matters, but only for a few companies with really deep pockets

In May 2003, Nicholas Carr published an article in the Harvard Business Review called "IT Doesn't Matter" that launched his glorious career as a technology pundit and made a lot of people in Silicon Valley really angry.

Carr's argument was that for most big companies, information technology had become a simple necessity, not a source of competitive advantage. Which seemed to be horrendous news for a producer of super-high-end computing equipment and software like Sun Microsystems. And sure enough, Sun lost money every fiscal year from 2002 to 2006.

But now Sun is profitable again (its fiscal 2007 results won't be out for another month or so, but the first three quarters looked pretty good). And it has become so by largely embracing Carr's argument. "I agree with Nick Carr more than I disagree," Sun chief technology officer Greg Papadopoulos told me over breakfast Tuesday, "much to the chagrin of my peers in the industry."

In Papadopoulos's telling, information technology has become a commodity for most of the companies that drove the boom in IT spending in the late 1990s. Worse than a commodity, a burden. Something you're afraid of messing up, but can get no real competitive advantage from. "Five years from now, if I still had my internal IT shop running my e-mail at a Fortune 1000 company, I'd be as proud of it as I am of my pension fund," he said.

What this means is that Sun has had to focus on those deep-pocketed companies for whom IT is still a competitive advantage:

1) The Web 2.0, social networking and gaming sites that have captured the bulk of Internet traffic. Microsoft, GooTube, MySpace, etc.

2) The big companies that can still wrench profits out of superior computers and software--FedEx routing its trucks or Wall Street firms pricing their derivatives.

3) The companies consolidating business IT tasks at the network level: Salesforce.com, SugarCRM, Workday, etc.

There aren't many such customers, and in the future there may be even fewer. "The world needs only five computers," Papadopolous wrote in a post on his blog (you can't be a top Sun executive and not have a blog) back in November:

I'm just saying that there will be, more or less, five hyperscale, pan-global broadband computing services giants. There will be lots of regional players, of course; mostly, they will exist to meet national needs. That is, the network computing services business will look a lot like the energy business: a half-dozen global giants, a few dozen national and/or regional concerns, followed by wildcatters and specialists.

The model for Sun, then, is oilfield equipment and services provider Schlumberger, Papadopoulos said. Schlumberger makes a lot of money, although it's probably never going to get its CEO on the cover of Fortune--whether he wears a superhero costume or not. Funny that Papadopoulos didn't cite Schlumberger archrival Halliburton as his example, huh?