Comment Articles

How to blow a billion - or two

Matt Loney ZDNet.co.uk

Published: 02 Jan 2004 15:55 GMT

If Sun's acquisition, in 1996, of Cray's Unix server business for under $100m was one of the best acquisitions in the history of the computer industry, then its purchase of Cobalt Networks four years later for over $2bn (£1.12bn) was surely one of the worst.

Most of us, I'm sure, would not find it easy to blow a couple of billion dollars. Half a dozen houses dotted around the world, a private yacht and even a Gulfstream jet would put only a small dent in your bank balance. Going back a couple of years, you could of course buy a dot-com, but you'd probably want to pick something with no tangible source of income, no real product to speak of, and founders who know more about marketing than they do about technology.

You would probably have avoided something Cobalt Networks, the company that kicked off the appliance server revolution, like the plague. There would be no way that a company whose products were bought by the bucket-load and enjoyed a loyalty rarely seen in the world of IT outside of Apple would ever be a bad financial bet.

In the late 90s, ISPs around the world were filling their racks with Cobalt's pizza-box-shaped appliances. These servers were ideal for ISPs hosting a growing number of Web sites. In a world that was still being sold monolithic servers with colossal service contracts from the likes of Sun, Cobalt Raq servers were relatively cheap to buy, and supremely easy to set up. Once a user account had been created, the user could just be left to get on with it: typically they would have everything they needed to run email accounts and create a database-driven site using PHP, MySQL and, latterly, even Microsoft's Active Server Pages, thanks to the Chilisoft technology that Cobalt had bought. They even had all the tools at hand to monitor the health of their system, set disk space allocation for different accounts and monitor how full that allocation was getting.

It's little wonder that Sun Microsystems, which was becoming increasingly worried by these new server appliances, started making approaches. Ed Zander, who was then Sun's chairman, was particularly interested in the appliance idea and, when I met him in the summer of 2000, was acutely aware of the threat that Cobalt posed to Sun's business. At the time, remember, Sun was positioning itself as "the dot in .com", largely on the back of the high-end servers that it acquired with the Cray purchase. In fact, while Sun probably had the larger sites tied up, Cobalt almost certainly had a lot more to do with the boom in small Web sites.