Scott McNealy is best known as the co-founder and CEO of Sun Microsystems, but he’s also a self-proclaimed “raging capitalist,” open source movement pioneer and all-round industry force. He’s had an indelible impact on the industry through technology innovations (think Java, SPARC and Unix) and nurturing talent (Sun alums have gone on to launch and/or run Google, Microsoft, Yahoo, Autodesk, Motorola and countless startups). Scott’s latest interests may have even greater impact—among other ventures, he’s co-founded Curriki, a nonprofit that facilitates the creation of educational content.
In the spirit of the times, Shirish Netke (himself a proud Sun alum), spent time with Scott on a Zoom call to get his pulse on the current climate—the pandemic, particular industries and functions, and how the technology dynamic must change in order to drive innovation. Here are some of his thoughts.
Shirish Netke: Sun’s journey is well documented in the history books, as is yours. So I’m going to ask you a personal question—is it true that you entered Harvard as a pre-med student? How did you land up in tech industry?
Scott McNealy: That’s an “Accidental Empires” story. When I was growing up, I wanted to be a fireman and my mom said I should go be a doctor. I got to Harvard and got a “B” in the chemistry classes, which is what you needed to get into med school. Then, I saw in my sophomore year that 60 percent of the class was pre-med. I really enjoyed the economics class that I took from Dr. Bill Raduchel and decided to switch to economics.
I grew up in the auto industry, so I went to work in the automotive operation for a couple of years. Then I went back to business school and ended up building tanks out in San Jose at a company that was the first to put Unix on a microprocessor called Onyx. I was the youngest guy on the staff. Ten months later, Vinod talked me into starting Sun. So that’s how I ended up in the valley.
Now here’s the backstory. I started off after business school, working at FMC Corporation headquarters and fell in love with a girl in on the project in San Jose and told them I would quit if they didn’t move me to California. Sometime later I introduced Vinod to a venture capitalist who decided to invest. We went to MacDonald’s on Page Mill and El Camino and Vinod asked me “So when are you quitting your job?”. I said “What are you talking about, quit my job? I’m making $32,000 a year.” He said, “You can’t back out on me now.” I said, “Vinod, back out? You haven’t made me an offer.” He said, “You’re a founder!” The next day, I quit my job.
Shirish: Silicon Valley observers say that great companies are built during an economic slowdown. What is your prognosis for innovation and entrepreneurship in coming years with the economic slowdown? Have you seen this movie before?
Scott: We’ve had lots of slowdowns. I think these cycles provide new opportunities from the change in behavior that a downturn causes. I think this one is unique because we shut schools down—that’s a big behavior change. We don’t have people coming to the office. That’s another big change. We are also going to be plunged into new ways of entertaining ourselves and feeding ourselves and how we interact with each other. There are so many behavioral changes that people are trying out for the first time or getting comfortable with that they weren’t before. I think that will create a lot of disruptions and opportunities.
Shirish: You mentioned the shutting down of schools and offices. Could you tell us a little bit about how that is important in the context of the pandemic?
Scott: Every organization is trying to educate its clientele—right now, you can’t just call them in. I’ve got boys getting computer science degrees at Stanford with shaky video training. It’s a correspondence school with a really bad curriculum. Corporate training is the same way, if you want to talk about it as an area of disruption. Education, training and e-learning is probably the biggest area of disruption that needs to happen.
I find it fascinating that Netflix is killing it right now. We’re spending billions of dollars creating content for Netflix. I confess that I watched “Tiger King” during the lockdown. I’ll never get those hours back. They’re gone. But you know what? It was beautifully produced.
Then I look at the most important class you could be taking is computer science at Stanford and it’s a shaky YouTube video. Why aren’t we spending billions of dollars creating content? There is no great free open source developer tool to allow you to do pre-production and post-production of an 11-part mini-series on “Games of Calculus.” We have “Game of Thrones.” but we don’t have “Games of Chemistry” or “Games of Electricity.”
What we’re building is CurrikiStudio (think Java Studio) and CurrikiGo (think Java Virtual Machine). Go is the bundle of micro services that lets you create once and run anywhere. You create using Studio, you get this application, get it exported to the learning management system and it’s all free and open.
My fantasy is to get Time Warner Studios, gamers out of Activision and the world’s best calculus teacher and some celebrities to MC and narrate. Then we use CurrikiStudio to go create a really great active learning experience.
We can then get educational content that’s bingeable like Netflix and addictive like Fortnite.
Shirish: Engineers in Silicon Valley are often accused of creating solutions in search of problems. We saw many examples of this during the dotcom boom. What’s your take on this? What advice would you give to entrepreneurs who are building the “next new thing?”
Scott: A lot of people that did toothpaste dot com and lost investors a lot of money. I think people are too often looking for the home run—the Instagram or the Snapchat or the Facebook. I would encourage people to look for more of the essential items.
For example, take Rex. Homes are the biggest asset that most people own. Buying and selling them costs you six percent, and there’s sort of a cartel making it happen. This has not changed in. . .forever.
There’s a whole bunch of issues when you move. You’ve got to shut down all the services where you were, and then get new network services, a new pool boy, new gardener, insurance and title. There’s a lot of things you have to do, and it’s a hassle. It makes it harder to get out of the place you don’t want to be or get to a new place that you do want to be. Rex decided to go after this, automate the process using AI and machine learning, and match buyers and sellers for not just the house but all those ancillary services that go along with it. It’s basically house moving as a service.
All of a sudden Covid hits and we had been doing all of this stuff online and automating and making it computerized. We were buying and selling houses without anybody even visiting the house. We’ve sent a drone to take a picture and do virtual tours. We do all of the data, answer all the questions, talk to people electronically, automate the paperwork. And all of a sudden, you’ve changed an industry.
Housing is an essential industry. There are many places and things that count as essential economies. I like the fact that Rex is all about productivity, not activity.
Shirish: Talking of essential industries, let’s talk about banking. It could be argued that Sun introduced a few four-letter words to the financial services industry. Unix and Java are now mainstream in banks. However, ’open’ banking is still a novelty. What lessons can banks learn from the tech industry about APIs and innovation?
Scott: They’re regulated, and anytime you have regulation, you get stagnated innovation. They can’t move to the cloud. There used to be regulations where if you put a bank’s computers in a Sun partner’s data center, it had to have barbed wire and fencing around it. They weren’t allowed to share a network because that could that could create a potential breach. That creates a lot of challenges.
An industry that wants to be regulated wants to maintain a monopoly. SOX 404 and Y2K firmly established SAP and Oracle as the ERP vendors forever because it became so complicated. Now you can’t switch out of them because it’s so complicated. The more involved the government is, the less innovation you will have.
Another thing related to regulation is that mandated brokers are a non-essential activity. The beauty of the Internet is that all of a sudden, you can have bid ask systems and match people automatically—with no broker in between—because it doesn’t really cost much once you establish the buy and sell, if there are no regulations. Brokers who add no value are protected by regulation.
There are good moves being made. Schwab, for instance, is announcing “Slices” so you don’t have to buy a whole share. You can buy a slice of a share. That’s using computers in the right way. . .assuming transactions are free electronically and you get to the point where slicing is OK. That’s the biggest value-add technologies can provide—matching creators with consumers and keeping the middleman out. Schwab has done a great job in driving that.
Shirish: You’ve had a few things to say about privacy in the past. You’ve also been speaking about zero-party data. Does the need for data privacy put constraints on technology innovation?
Scott: I didn’t say much. I just said – you have no privacy, get over it!
Cheetah Digital bought WayIn where we were innovating on zero-party data. This is a contract with the customer that is explicit, and the customer shares data. That’s a better way than looking in your emails or watching what you’re browsing or taking information from your cell phone when you didn’t necessarily opt-in. Those are more invasive than somebody who says, if I share this data, I get something in return.
If you use a free service, you’re not the customer. You’re the product. The concept here is to give customers a choice. They can have a choice of a cell phone company that promises not to sell their data or take this cell phone service for free because they are letting them use their data. This ought to be an explicit decision for them in the privacy space, not a surreptitious one.
The reason it hasn’t happened is that people don’t value their data as much as some people say they should. A lot of companies have built their businesses on giving you a free service and having your data. It is security through obscurity when you look at the click through licenses on these things—on page 87, in the fine print, it says, “We’ve got your data and we’re going to do whatever we want with it.” Nobody ever reads that. No company has come along to give them an alternative. They would rather have it for free.
I’m working with a company called DrumWave that’s trying to figure out how to value each data bit and create data currency. It’s a very interesting business, and they’ve got a pretty interesting model in creating a marketplace where individuals would actually be able to sell their data. It would be valued at a fair market price, and it would create an exchange and a methodology for valuing that data.
We don’t have a good way for valuing data. How much is my data worth? Who do I sell it to and how do I do that? Those frameworks have to be created. This is what DrumWave is trying to do, and I think it’s potentially valuable.
Shirish: What is your view of AI and machine learning specifically as they apply to mainstream business? As a business leader yourself, what is your advice to CEOs of companies worried about AI and machine learning?
Scott: It’s “have lunch or be lunch.” Sometimes you’re the windshield, sometimes you’re the bug. I’d always rather be the windshield. If you’re standing still, you’re going to get run over. Embrace change or get somebody else to do it. There are very few businesses out there that are super sticky. At some point, Oracle and SAP are going to get disrupted. That’s the circle of life – go watch The Lion King.
That doesn’t mean you’re bad. The right thing might be to harvest the position you have as opposed to wasting a whole bunch of shareholder dollars trying to create a position that you don’t have expertise in. Sometimes, just managing the business properly and profitably from a cash flow perspective to its natural expiration date is a reasonable model.
Each business model requires a different look. If you’ve got momentum and cash and really bright people, make sure you’re really looking for those disruption and disintermediation opportunities.
Shirish: Many Silicon Valley leaders have strong opinions on cryptocurrency. These opinions are based on many factors, ranging from the benefits of low transaction costs to an ideological opposition to fiat currency backed by a government. Where do you stand on the innovation around virtual currency and its potential to create wealth for entrepreneurs and investors?
Scott: I stand in favor of crypto currencies, because I trust them more than I trust government to not devalue my currency. The reason why governments don’t want cryptocurrency is because the number one way we tax our citizens is by printing money. Quantitative easing. Deficit spending. Inflation. If you’re an American, it devalues every asset and income. Devaluation is a regressive tax because it costs you. And yet, for some reason, people think deficit spending is OK. It’s taxation without voting.
The beauty of Bitcoin is they have a set plan for mining new coins. Anytime the government is allocating money, it’s misallocating. When two thirds of the federal budget is redistribution, I guarantee you that’s not the proper allocation. The invisible hand destroys organizations that don’t properly allocate capital.
Shirish: I promised my old Sun gang I would ask you one question about events that changed the course of history. The US bought Louisiana in 1803 from France for $15 million and got 14 states. We bought California from Mexico in 1848 for $15 million and got the gold rush. How much did you pay for the Cray server business in 1996?
Scott: That’s probably a top 10 acquisition in global business. (I think Microsoft buying DOS and Office was probably the best acquisition ever.) We paid about $20 million for the Cray super server business and it was a multi-billion dollar product line for us.
This is the beauty of open and sharing. We open-sourced the operating environment. We had an open SPARC architecture. We encouraged clones and were able to buy one and then put it through our sales and support and brand. If we had been proprietary, that never would have happened.
We didn’t invent it, but we certainly pioneered and popularized the whole open-source movement. I’m sort of playing the same game with Curriki, with CurrikiStudio and CurrikiGo – the equivalent of Java Studio and Java VM. We’re doing it in the dot org world. The reason we’re making it a dot org is that I don’t want to make money on it. I want people to get educated, and I want them to be able to get educated with quality content. The only way we’re going to get there is to have a CurrikiStudio and a free CurrikiGo environment, because the teachers want it and we’ll use it.
We’d love to have technology contributions. It’s an open source project, just like any you might find on GitHub. Everybody needs to learn and stay current. We want people to try it. Help us make it better. If you want to contribute, go to www.birdiesforeducation.com/ and sign up and pledge as much as you can per birdie. You can also contribute at www.Curriki.org . It all goes straight to helping kids and businesses get better online education.
Thank you to Shirish Netke, CEO of Amberoon for sharing this conversation with us.
Shirish Netke is the CEO and President of Amberoon Inc. a provider of regulatory systems of insight for banks to manage operational risk from financial crimes. Shirish has led companies in the area of software, services and electronic entertainment. He was one of the first evangelists for Java when it was launched by Sun Microsystems.