Poker is hot. ESPN's World Series of Poker has better ratings than Queer Eye for the Straight Guy on Bravo. Maybe they should bring the cameras to Silicon Valley, where entrepreneurs have long reveled in the high-stakes game. Sun Microsystems is a classic example. Two decades ago, CEO Scott McNealy took some Motorola microprocessors and bluffed his way into all sorts of new markets, from stock exchanges to telcos to webhosting. Bluff, press, win; invent more, bluff, and press again - that's what entrepreneurs do. McNealy has been a master.
But the game can turn quickly, and McNealy's chips have been running low of late. Sun had $18 billion in sales in the glory days of 2001. It's now barely pulling in $11 billion. Since August 2000, Sun's stock has dropped from $64 to $4, taking away its Wall Street credit card.
The company is a victim of sticking with its own early success. Zillions of cheap PCs now trump bulky Sun servers. (Ask Google about that.) To play catch-up, Sun held its nose and bought a company named Cobalt that sold cheap Linux boxes using Intel chips (ewwww!) to host Web pages. Too little, too late. It wasn't hard to imagine Sun slipping with a slurp into the Pacific sometime in 2006.
So clutching a crooked seven-high hand with the pot at $2 billion, McNealy tried the bluff of his life, betting it all with a half-baked lawsuit, some patents, and a promise not to describe Windows as a hairball in public ever again. I can imagine the cameras cutting to a slight man gently stroking a white Persian pussycat, advisers whispering in his ear that McNealy's got nothing and to call or even raise the bet. But without blinking an eye, the Blofeld look-alike folds. McNealy wins. Sun has a new, five-year lease on life as Steve "Odd Job" Ballmer hands over the cash.
But something smells funny. Why would Blofeld, er, Bill Gates fold? He's got all the cards. And then it hits me - I've seen this movie before. The camera pulls back to reveal a giggling Gates. He ain't playin' macho Texas hold 'em; he's carefully playing chess and has just made another calculated move to protect Microsoft's position.
The open source dudes freak, insisting McNealy sold them out to save Sun. And they're probably right, but they have to look at the whole board to recognize that McNealy is just a measly pawn in a bigger game.
Gates has a history of investing in companies with inept, bumbling management to keep them in business and provide flanking protection for Microsoft's monopolistic backside. Back in 1989, Microsoft bought 20 percent of an up-and-coming Unix vendor named Santa Cruz Operation, run by the Michels brothers. Even then, Gates knew he had to keep an alternative to Windows alive. The Michelses liked to live large rather than succeed, but Santa Cruz - now known as SCO Group - kept Unix a jumble of competing standards and a Potemkin competitor for Microsoft. SCO, of course, is now making trouble for IBM and Linux users by claiming that it owns key patents embedded in the open source code.
In 1997, Gates threw $150 million into Apple, run by that guy from the animation studio with two Jobs. Apple was in a death spiral, but its stock popped 40 percent, buying it time. Gates needed Apple alive to prove Microsoft didn't have 100 percent of the personal computer business. The chess master scored again.
Oh, how Gates must wish that Netscape were still alive and independent. Microsoft's legal problems wouldn't be any more troublesome than a few parking tickets today. But America Online euthanized its browser, killing a useful pawn in Gates' game. I even think MSN might have made a run at AOL if Netscape were an independent company.
Praying mantises kill their mates after screwing them. Gates keeps them alive. He has to - if he ever went for checkmate, ever declared victory, it would be Game Over; customers and the Feds would be all over him. So he must satisfy himself by collecting modest 50 percent operating margins and screw (with permission) his competitors without killing them.
Which brings us back to Sun. Everyone can be bought, I suppose. Two billion is steep, but there's more to it. It's not only about keeping Sun alive and weak, but also about not letting it fall into the hands of someone, uh, more competent. Dare I say IBM?
Big Blue was chased out of the PC business by Dell, which ruined the party by making salespeople obsolete. So IBM reinvented itself by embracing open source and becoming a services company with legions of "consultants" (who are really just salespeople paid for by customers, ingenious!).
Had Microsoft let Sun expire, IBM could have bought it out of bankruptcy and maybe, just maybe, redirected the computer business away from Microsoft. We'll never know; $2 billion buys you a few moves ahead.
That doesn't mean entrepreneurs will stop playing poker. But be skeptical of those who win big pots and don't even realize that they are expendable pawns on Redmond's chessboard. Who's the next pawn? Yahoo!? Probably. Google? Someday. Unless they learn this lesson: Before you bet, make sure you know what game you're playing.
Andy Kessler (akessler@velcap.com) is a former hedge fund manager. His next book, Running Money, will be published this fall.START
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