Conversations From the Corner Office

FULL INTERVIEW TRANSCRIPT

Sun Microsystems Chairman Scott McNealy talks with Kai Ryssdal

KAI RYSSDAL: Scott McNealy, welcome to the program.

SCOTT MCNEALY: Great to be here.

RYSSDAL: So help me understand something. You run this company for 22 years, flying around the world, evangelizing to investors, talking to customers. You step down a couple of months ago and now you're flying around the world, evangelizing to investors and talking to customers. What's changed?

MCNEALY: Well, I'm not really talking to investors as much. I'm spending more of my time with customers and employees and the technologists and just getting into the depth of the business and I let Jonathan go handle investors and do SOX 404 certifications and I let him — you know, any time an employee comes to me and says, "I need a raise," I say, "Go see Jonathan," you know.

RYSSDAL: Jonathan Schwartz, the new CEO.

MCNEALY: He's my . . .

RYSSDAL: One of the things that happens when a CEO leaves the company is that everybody says, "Ooh, it's a change in direction." Sun's gonna go this way now 'cause McNealy's gone. Is that gonna happen?

MCNEALY: I didn't leave. I'm chairman, chairman of the board. I'm still working full time and I'm chairman of Sun Fed, our government operation, and Jonathan's given me some pretty clear goals — to grow Japan, to grow our top customers and to grow the federal space. So I got a lot of work to do.

RYSSDAL: I have a tough time believing anybody gives you goals to do at Sun.

MCNEALY: Well, as Jonathan and I have kind of agreed, for about 89 days a quarter, I work for him and then one day a quarter, he works for me. So it seems to work so far.

RYSSDAL: Why do you think there was so much interest in whether you stayed or whether you left?

MCNEALY: Oh, I don't — I think I did okay for the last 22 years in the CEO piñata and helped establish a pretty solid culture at Sun and people know I love this company and I care about it and I think they're just glad to see that I'm still there helping provide some stewardship and oversight for what is the Sun way, if that exists.

RYSSDAL: Well, what is the Sun way? We've got the HP way. What's the Sun way?

MCNEALY: Kick butt, have fun, share, character matters 24 hours a day, every day and innovation. And those are the things that we really care about.

RYSSDAL: You were only, as I hear the story, supposed to be an interim guy.

MCNEALY: Yeah, I actually spent about 22 years working with the board. When I took over in February of — February 24, 1984, they asked me to take over temporarily as the president and the CEO. Both stepped down on the same day under pretty exciting circumstances and I can remember that month, February, we did $2 million in revenue and lost $500,000.00. So it wasn't a pretty moment in time. We had a few quality issues, that sort of thing.

So I took over and ran it for a little while and we kept looking for a new CEO. We found one and then a big investor said, "No, we're not going that direction. If you bring in that new CEO, we want a five-year veto vote on whether or not Sun — Scott McNealy stays as CEO and anybody new, we want to have veto rights on."

And so the board and all the executives said, "Let's keep Scott on. He's doing fine." And that's kinda how it happened and away we went and I kept looking for 22 years to find my replacement and it took me a while but I think I found a pretty good one in Jonathan Schwartz.

RYSSDAL: You're not a technology guy. You're a straight economist MBA kinda guy.

MCNEALY: That's right. That's right and I think that's an advantage in the technology space. I don't pick colors. I don't decide kernel architectures and all the rest of it and I spend most of my time trying to lead. And, you know, there's 30,000 plus folks there and there's a full time job making sure they all know what the game plan is, where Point B, what Point A is and the culture and strategy and philosophy and the manner in which we're gonna get from Point A to Point B. That's a big job.

RYSSDAL: Why now then? Deciding to step down.

MCNEALY: Found the right guy and -

RYSSDAL: Simple as that.

MCNEALY: I've gotta say I've found hundreds of really outstanding CEOs and they've left Sun and they've run places like BEA, Bill Coleman, and Carol Bartz at Autodesk and Eric Schmidt at Google and Ed Zander at Motorola. But I found the right guy to go run Sun. And literally, there have been hundreds of ex-Sun people who are running companies very successfully worldwide. But I wanted the right guy to run the company that I founded.

RYSSDAL: What is it about Sun that makes you look for that special something?

MCNEALY: I founded it. It's been my life's work. I put a lot of hours into this thing as have a lot of other people and it's just important. I also think that the cause we're on to eliminate the digital divide without torching the planet, the way in which we do it through sharing, open source, open interfaces, community development, the example that we set around transparency, character and scandal free, you know, those are all good things.

This corporation, through corporate taxes and income taxes and capital gains taxes, has funded an enormous amount of government spending. We have trained probably in the millions of hours of customer and employee training. We've donated enormous amounts of employees' time and equipment to academic and research efforts. We do good stuff and I don't know anything else that I can do that would add more value to this planet than continuing with the Sun cause and mission and strategy.

RYSSDAL: Sounds sorta like a list of what you've done for the past 22 years. What are you most proud of though?

MCNEALY: The thing I get the biggest kick out of is an employee who will come to me and say, "I just put my kids through school" or "I bought a new house" or, you know, "Sun's the best place I've ever worked and I've learned more and done more." You know, that's always a big kick. It's also fun to go see how our technology is used, whether it's used in facial reconstruction in healthcare or whether it's used to save lives in the Defense Department or Homeland Security or whether somebody is doing distance learning and teaching people how to learn using our technology.

There's so many fun ways. So it's a great product in the sense that, you know, I just don't know how maybe selling an alcoholic beverage or something has as much psychic income. I mean it's nice and I sure enjoy my beer but, you know, the psychic income of what we do is so much higher for me personally.

RYSSDAL: Funny that you call it, you know, a product. I mean it sounds to me that what you're trying to do here is build culture and an enterprise that's gonna do a whole lot of other things than sell a product.

MCNEALY: Yeah, so one of the components of what Sun is all about, I mentioned, was innovation and what we try to do is build a culture around innovation and sometimes that grinds on some people the wrong way. Like Wall Street might not be happy that we continued our multibillion dollar investment through the downside of the bubble.

But now that all of a sudden we grew 21 percent in the March quarter, 29 percent last quarter, we were the only company that gained share and servers last quarter. We blew by Dell. We were the only server company — we're the fastest growing server — storage company; excuse me — in the industry. All of a sudden, that's now paying off. We built a culture that says we're gonna invest for the long term and innovation is not going to be compromised.

RYSSDAL: You kept going on the downside of the bubble even though there were a lot of people screaming for, A, your head and the heads of a lot of people who work at this company — layoffs. You basically didn't do it.

MCNEALY: Well, we had to do some downsizing. We over-hired. We over-facilitized. But we were careful to do it only when it was absolutely clear — we are 17 straight years cash flow positive from operations and we're gonna get GAAP profitable but we are certainly — from a checkbook perspective, you know, we're 17 straight years cash flow positive from operations and I think that's — that took some of the maniacal urgency away from making sure we took care of the long term. So we manage this company fiscally, I think, very responsibly but not necessarily the way other people would have us run it.

RYSSDAL: I've done a couple of these conversations with CEOs of companies who've been in equally as tough a time as Sun found itself — rougher, in point of fact; Anne Mulcahy at Xerox, Pat Russo at Lucent. They laid off tens of thousands of people. My question to them always was "Why lay these people off?" My question to you is "Why not lay off more?"

MCNEALY: We believe we're on a very good trajectory. We believe we are — and when you're growing at 21, 29 percent year over year, when you're generating cash, when you see the kinda market momentum, we want to make sure that we're readjusting the workforce to fit the need both in scale as well as the scope of what they need to do and it's not just a clear "Hey, this is who's gonna be let go."

We take the hiring contract very seriously and we think our culture is built on trust that people have. People want to work at Sun. And even the people we have laid off, it's stunning how many of them are sending me emails or calling Sun trying to get back in. They all want back 'cause they felt they were treated well while they were here. They were treated well on the way out and they love this environment and want to get back and we'd love to get as many of them back as we can.

RYSSDAL: You've run off a lot of numbers about growth and cash flow positive and GAAP profits and all that. How much though really do you pay attention to the Wall Street hubbub?

MCNEALY: Right now, I'm — you know, that's Jonathan's job to communicate and make sure we're being incredibly transparent, which we have been. Now we haven't given guidance but that's what analysts are supposed to do. They're supposed to analyze the data and give guidance, not analyze my guess, and, you know, that's their job to guess. So we haven't been huge on guidance.

We give them as much as information that we feel we know about spending, about what's going on inside our business, and we work very hard to be very transparent with our shareholders about what's going on and make sure that the accounting is as solid as possible. But more important to me is are our customers happy and are our employees happy. And if those two constituencies are happy, I think the shareholders will be just well taken care of long term.

RYSSDAL: So when you read in The Wall Street Journal during your days as CEO that this analyst wants your head and this analyst says that, do you pay any attention to that? I mean what do you think about that?

MCNEALY: Oh, I'd be inhuman if I didn't pay attention to that to some level but I don't think it necessarily changed the way I did things. I mean The Wall Street Journal wrote an article back in the 80s that — in fact, in 1989, I think — they wrote an article that said Sun needs to hire their John Scully, you know, which was a fairly direct, you know, shot at me, you know, but, you know, I could have rolled up and curled up in the fetal position. That's certainly not my particular style but, you know, I could also spend my whole time trying to prove them wrong.

Instead, I'm trying to, you know, solve the digital divide problem, generate a return for our shareholders, take care of our customers and do some good things for the planet. So there's plenty to do besides respond to a particular analyst. And by the way, that analyst was probably doing the right thing for their particular job, their salary, their market holdings position or who knows what. So, you know, I don't take any particular piece of data that I get from the planet in isolation as the truth. You gotta understand who's coming at you from what perspective and it's not a personal thing.

RYSSDAL: You rode the bubble up; you rode the bubble down.

MCNEALY: Many, many times.

RYSSDAL: Many times.

MCNEALY: There have been lots of bubbles. There have been — we've been through many, many, many cycles at Sun. This last one was more visible but I'll tell you, the one in '89, for instance, I remember at the end of Q4 in '89, we had to borrow $50 million at the end of the fiscal year because we had a negative cash balance and I didn't want our income statement — our balance sheet on our annual report to have parenthesis around our cash balance. We thought that would look ugly.

So I mean that we were dealing with bank covenants and, you know, we were wondering whether we were gonna meet payroll. We have $4.8 billion of cash in the bank and generating cash. This was not a scary moment. It was noisy but it wasn't as scary as it's been in the past.

RYSSDAL: Do you think though that you're back and that you're leaving Jonathan Schwartz, your successor as CEO, in a position to go someplace with this company?

MCNEALY: Well, we'll see over the next three or four years because I want Jonathan to get all the credit but I'm gonna take any of the blame for anything that happens over the next three or four years and that's the way it ought to be. So my goal and hope was that I gave him something that's, you know, shipshape.

The product line is as strong as it's ever been. The quality is outstanding. The customer satisfaction numbers are off the charts — wonderful — and a wonderful cash position. You know, I'm trying to do my best as chairman to make sure that, you know, the governance is all shipshape and done well and we all know that that's a non-trivial job anymore. So, you know, there's lots I can do to help but it's his baby now.

RYSSDAL: Twenty-two years, a long time to reflect on. What'd you do wrong that you'd like to have back?

MCNEALY: I probably rode and was too loyal to too many senior executives for too long and wasn't aggressive enough about — and if you talk to those folks, they'll say that's part of the charm of me and Sun but it's also — you know, I should have moved a little quicker on some people that just got into the wrong job. I put them into the wrong place or, you know, they just got in over their head.

RYSSDAL: That's kind of interesting because one of the things you read about you, as you read and do your research and find the profiles, is that you're not a real touchy feely kinda guy.

MCNEALY: You know, the public persona of me versus, you know, who I am and how I am, I think are — it's fascinating to see the difference and you talk to my buddies who know me and they won't tell you anything 'cause they know I'm a very private — and you go back to my high school yearbook and they say, "The shy, quiet and unassuming Scott McNealy won a wealth of friends." That was the quote in it and that would not be kinda — you wouldn't match that up in a — you know, connect the dots with the quote and the person. But, you know, I don't think I've changed from that core personality.

It's just when you get put in the CEO role, you've got to — we can't afford the Microsoft or IBM ad budget so I learned a long time ago that a little theatrics is a nice way to drive brand and I would say Sun has been known as the — I remember somebody once came out and said we're the — when we were a billion dollars — "You're the noisiest billion-dollar company we've ever seen." And, you know, I think we're as noisy as any $13 billion.

I mean you think about the brands of SPARC, Solaris and Java and Sun and how powerful those brands are on a global basis with people who buy IT and we haven't done a lot of advertising. We've been — we've used the power of personality and noise and bully pulpits to go drive that and it's been very cost effective for us.

RYSSDAL: You know, it's interesting you mention all those brands because I'd be willing to bet most of the listeners to this interview don't know what SPARC and Solaris and open source and all those things that you just mentioned are. What difference does it make to their daily lives?

MCNEALY: They aren't consumer brands in the — well, Java is a consumer brand and I would say most teenagers know and have recognized the Java logo popping up on their cell phone or — and they're gonna certainly learn with Blu-ray and implementing the next generation DVD with Java and it's become — there's 2 billion Java cards out there so that's becoming more of a consumer brand.

But most people don't know the Alcatel brand or the Lucent brand either but you're using that technology all day long. But I guarantee you every phone administrator and everybody who's buying — everybody working in the telephone — in the telco — industry knows those brands and all of the IT folks in the world know it's Java and .Net and it's that kind of environment.

RYSSDAL: .Net is Microsoft.

MCNEALY: Yeah.

RYSSDAL: One of the great things about interviewing you and researching you is you're an eminently quotable guy and I want to read you something as we move on.

MCNEALY: That's the problem with the Internet is these quotes never die, do they?

RYSSDAL: That's right. You can find anything out there. It's those network computers. They're just — I don't know. Here's one. You ready? "The only thing that I'd rather own than Windows is English because then I could charge you $249.00 for the right to speak it." You've made no secret over the years of your — dislike is probably too strong; how about distaste for Microsoft and the way it does business. MCNEALY: How about the competitive alternative and the competitive fire, I think is a better way to go look at it. And I think, you know, the Microsoft thing was clearly a very important battle for us to undertake, because a lot of people weren't, and if you look at all of our contemporary companies who didn't take on Microsoft, just about every one of them is gone and have been relegated to a different business model and have gotten out of the R&D.

We took them on and, in fact, have established ourselves. SPARC and Solaris and Java is the alternative to the X86 Windows .Net model and those are kinda the two architectures. We have created, I think, a very positive competitive environment with Microsoft with our ten-year patent amnesty, patent-pieced interoperability agreement that we signed with them a couple of years ago and I think the two companies are making our technologies interoperate 'cause every customer I talk to has Java and Solaris as well as Windows and .Net and they want the stuff to work together.

RYSSDAL: Another way to say this ten-year interoperability agreement is Microsoft paying you almost $2 billion.

MCNEALY: That was a nice little byproduct but, more importantly, at the end of this, we have a patent cross license and the ability to make sure our products interoperate for our customers which is far more important than any couple of billion-dollar check that was written.

RYSSDAL: So has Microsoft gone from the evil empire to your best friend now?

MCNEALY: They've gone from the evil empire to our number one competitor where we are working to compete in a way that the customer is comfortable and feels like they have choice and they can choose to use SPARC, Solaris and Java where it makes sense and not be forced to just use a Windows .Net environment everywhere they go, with some hope that they can interoperate and share in those two technology investments without a huge island kinda Balkan state problem.

RYSSDAL: You spent a lot of money and time and corporate energy fighting Microsoft. Too much?

MCNEALY: That's kinda like saying Pepsi spends a lot of time competing against Coke. Too much? That's our business. They're in the computer business and we're in the computer business. We don't chase them on the desktop. We don't do MSN. We aren't doing cell phone operating systems. We don't do game machines. We don't do business applications. There's a whole bunch of places that we don't chase Microsoft. We let Google do that or Sony do that or IBM Global Services or whoever.

But we do compete against Microsoft in the core network infrastructure space around the computer architecture. That's our business. We're very focused on it and I think there's a lot of people who will say we deliver a darn good product that does a lot of things that Microsoft can't do, including driving some of the security features and reliability and scalability and price performance and eco responsibility features that Microsoft just isn't delivering on. So we offer some choice to the customer base.

RYSSDAL: How do you justify that point of view, though, when by many metrics that are out there, Microsoft has been a more successful company?

MCNEALY: There is a very successful tactic that if you can pull it off generates very high margins for the shareholder and that is by creating large barriers to exit and there are some architectures out there — the mainframe from IBM has huge barriers to exit. It is almost impossible to get off of that. So they raise the prices and IBM makes a lot of money. You get on Microsoft and there's huge barriers to exit off of Excel or Windows so their prices can be raised and they can make an enormous amount of money on that.

Our products are open interface, open source, community developed and have very low barriers to exit. So our margins tend to be a little more reasonable and it is a little easier for the customer to threaten to leave us if we don't deliver, kinda like you can leave a Ford and go to a Chevy if Ford isn't delivering the kinda product you want.

We think consumers longer term — and the game isn't over yet. I'm only 51. I'm planning on living a while to see the rest of this game get played out but I think that you look at the number of Java devices out there on the planet — three and a half billion Java devices. That dwarfs the number of Microsoft clients out there. We got a long way to go to declare game over in the technology space, especially given that technology has the shelf life of a banana.

RYSSDAL: You said "barriers to exit." I'm hearing "monopoly and antitrust."

MCNEALY: I'm talking about barriers to exit. No. It just so happens that the mainframe was the target of a antitrust action a long time ago, as was Windows.

RYSSDAL: Sure.

MCNEALY: But I call it barriers to exit.

RYSSDAL: When you say "barriers to exit," what do you mean?

MCNEALY: So it's pretty easy to switch from a Ford to a Chevy. You don't have to retrain. You don't have to redo your garage. You don't have to get a new job where the streets allow you — but you try and switch from Windows to some other desktop or you try and switch from a mainframe and get all your applications reported and running on a UNIX architecture or something like that. It's massive — it's relearning a new language. It's like learning a new language. It's like deciding "All right. You know, next week, I'm gonna start speaking Chinese."

The barrier to exit is enormous and, by the way, there's only one company that speaks mainframe; it's IBM. There's only one company that speaks Windows; that's Microsoft. So you get a sole supplier architecture with somebody who — I mean the written and spoken language of computing was owned by IBM back in the old days with the mainframe OS and they could charge whatever they wanted to and, unfortunately, we lived and we still are living under the mainframe era in many places.

RYSSDAL: So you've got these three and a half billion Java devices out there. What's taken you guys so long to catch up?

MCNEALY: Catch up? I think we've done pretty well. We're a $13 billion company. We're the fastest growing server company, the fastest growing storage company, spewing cash — $4.8 billion of cash — and we're one of two developer communities out there, with Microsoft being the other. We have a wonderful position in a market that's only gonna grow. If you believe the network is the computer and that things move to the network like Google as opposed to to your iPod.

I mean there's two strategies. Is all your state and all your content and all your stuff in your pocket? Or is it out on the network? Where is it safer? Where is more manageable? Where is it more secure? Where is it more private? Where is it more accessible? Those are all tradeoffs between carrying it all around. Do you carry all your money around in a briefcase or put it in your mattress or do you put it in the bank?

And over time, we believe the technology is gonna drive more and more of your content and stuff to be stored remotely out on the network where the network is the computer and we think that positions us very nicely.

RYSSDAL: But still, most of us are schlepping around laptops all the time.

MCNEALY: I'm so sorry.

RYSSDAL: That's a fact of life for most of us, probably not you.

MCNEALY: Yeah, well, I can take my Java card right now out of my badge here, stick it into any terminal here and my desktop shows up from — I don't know where it is. I think it's in Colorado. But I can go home. I can go to my house, stick it in there and, boom, there it is. Away you go. My desktop goes where I go.

RYSSDAL: Well, let's go do that. Let's go find a terminal and see how it works.

So here we are. It's an empty conference room. You've got strapped on your belt a card, basically, and a computer terminal that looks like, frankly, any other computer terminal but with some little Sun docking port.

MCNEALY: Right. So I've got my standard I.D. card. It has a swipe to get me in the door. It has an RFID tag and it also has a Java chip on it and I just use that as my I.D. It's got my picture and my employee number and I can walk up to any terminal anywhere in the company and just stick it into the card reader and it is now roaming the network trying to find my desktop and so it's looking around and it's got my I.D. in here and it's about anywhere from three seconds to ten seconds to go — it found my desktop in that time that I was talking and it asks for a second factor authentication. So I am typing in my password to authenticate. There's my desktop. Now I'm not gonna let you look at my email.

RYSSDAL: At your email. That's too bad 'cause, you know, who knows what we would learn. It'd be a much more interesting interview.

MCNEALY: Well, I have just mouse clicked on and you can see that this is very clearly my desktop, as you see the picture of my four boys.

RYSSDAL: Sure, four little boys.

MCNEALY: On our 11th anniversary and it's my little screensaver. So instead of having an office where I have pictures of my boys, I can have my screensaver so wherever I am, I can see my boys. Now, I have everything that you could need, including a calendar. I got a terminal. I've got email and I've got a Web site and, in fact, I can go anywhere I want and I've got all of the applications that you could imagine, including — here, I want to show you. I got games. Look at all the games I've got.

RYSSDAL: 'Cause that's the most important thing, actually.

MCNEALY: See that. I've got Mines, Nibbles, Robots, Spiders, Stones. I got lots of stuff so, you know, it's not just work.

RYSSDAL: Right. Right. So what we have here is this is a Sun workstation using a Sun operating system and a Sun set of software and email program, the whole thing.

MCNEALY: Think of it as a display grid. Google is a search grid, right?

RYSSDAL: Right.

MCNEALY: And you go to it to search. EBay is an auction grid where you go to it to access auctions. Think of this massive computer sitting out on the network with your desktop running on it and any time you access it, you access it by sticking your card into a television. Think of this as a computer television.

RYSSDAL: Okay.

MCNEALY: And this is channel Scott. My I.D. card is channel Scott.

RYSSDAL: And you just pulled it out and now it's gone.

MCNEALY: The screen's blank. There's no — you can steal this terminal now. There's no data here. There's no state. You can't steal anything. It's like stealing a TV and thinking you ran away with the next, you know, Alias or whatever.

RYSSDAL: Now I have to ask you, though, this to me is fabulous.

MCNEALY: It's science fiction.

RYSSDAL: Well, I mean it's reality 'cause you just did it. It's great. But the question is why aren't you the most powerful technology company on the planet if you have this thing. I mean -

MCNEALY: Well, you know, so I was just with the head of a big intelligence community CIO this morning and he thinks this is the most unbelievable and most secure environment. This solves your VA Hospital issue of losing all the laptop information. It's a multifactor authentication, in other words, two factors — what I have, my card; what I know, my password. And you can add biometrics to who you are.

It's secure when I walk away 'cause I can't get through the next door without my card so I have to pull the card out and I've completely logged out just by pulling my card out and I stick the card back in and I can re-log in in a matter of seconds and, boom, I'm right back to where I was. So the — we don't have any move costs. We can — and I work from home during the day, during the rush hour, 'cause I've got a Sun Ray at home in my office and there I am. I'm back.

RYSSDAL: Right. So I'll ask the question again. How come everybody on the planet's not buying this?

MCNEALY: Well, you know what? Of all of the companies left of the hundreds and thousands of computer companies since we've been in business, it's us, IBM and Microsoft. This is part of the power and part of the technology and part of the reason why we've been able to compete again the two dominant mainframe and PC companies in the industry and we've got a better way and we're growing faster than any of them right now. So it ain't over yet. We're still in the third inning here and I like our position. I like our team. We're learning. We're getting better. We're getting stronger. We're getting deeper. We're reaching in and the pipeline is larger. And it's still early, early days. It ain't over. It ain't over. So you don't want to peak too early.

RYSSDAL: Obviously, there are all kinds of applications for this thing. Think about the traveling executive, right? Spends 300 days a year on the road schlepping his laptop around like most of us. Couldn't we put this in a hotel and have them walk in there?

MCNEALY: So we're getting — yeah, we're getting there. Now that would be ideal to be able to put this in anybody's set-top box in their house or in a hotel set-top box. We're there with the cell phone and here I have my Motorola Java phone.

RYSSDAL: Sure.

MCNEALY: And if you turn this Motorola phone off, take the battery off, you will see a Java card SIM which is identical to the SIM card on my I.D. It's the same Java card. That is used to authenticate me to the network for a very thin client called the cell phone and literally a couple hundred million Java phones are shipped every quarter with a Java card. And if you think about a cell phone, it just happens to be a thin client with a small display, a small keyboard and the ability to do voice.

So we're there. It's just not necessarily gonna look like this form factor, this big, huge, clunky form factor that I can't carry around with me. And I think you're gonna see thin laptops, thin devices like cell phone and other things all merging into a whole new set of manageable and usable thin client computing devices over time. But it isn't gonna happen overnight. It's gonna take as long to unravel the Windows hairball as it took to ravel it.

RYSSDAL: How much time do you spend knocking your head against the wall, thinking that if you'd just gotten this out there sooner, you wouldn't have to worry about it?

MCNEALY: Well, you know, I can spend all of my time looking at what we didn't get done. I prefer to spend a lot of time with my team looking about how much we did get done, which — and surviving is one thing. Thriving is the second thing we've done and created an enormous market position with just stunning market opportunity going forward. I'm all about what we get to do going forward. You know, there's a lot of companies, you know, Wang and DEC and others, who don't even get to get up to bat next inning. We're not only up to bat next inning but we've got a lot of people on base and very few outs. So I feel pretty good about where we are.

RYSSDAL: So let me ask the question. It was years in the making and just recently settled but what — for the average listener out there — what was the beef between you and Microsoft?

MCNEALY: I don't think there was any beef other than a difference in philosophy. We believe in the network as the computer. They believed in a PC on everybody's desktop. We believed in open interfaces, open source and sharing. They believed in, you know, everything from Microsoft and, you know, there was a very, very different philosophy.

Now, there were other specific issues about how they handled our Java technology which are not worth going into anymore because they basically got resolved and settled and, you know, that's history. But, you know, it's good there are different philosophies. It's good there are different strategies. Choice is important. Freedom from choice is a bad answer.

RYSSDAL: Yeah. The network is the computer — catchy slogan. What does it really mean though?

MCNEALY: What it means is 15 years ago, a hundred percent of the computing you did was supplied by your IT department. Your desktop was supplied by it, the applications, and the servers were all run by your IT department and you really didn't go out through the firewall except to send email. Today, think about how much time you spend in the browser going out and using somebody else's infrastructure that's out on the network. The network now is the computer. How much time do you spend in the browser? An enormous amount of time.

RYSSDAL: Sure.

MCNEALY: Google is the computer — the Google grid. EBay is the computer. E*Trade, Amazon.com, SalesForce.com. These are all — the network is the — these are examples of the network is the computer and all of the services, where you get your ring tones, iTunes, all of these things are basically network-based services with a whole bunch of computers out over the network. You don't have to administer them. You don't have to own them. You just use them and you either get them for free or for fee or for subscription or however. There's all kinds of monetization models but the network is the computer. People looked at us when we said that in the 80s like "What are you talking about?" And now everybody's starting to understand and see it.

RYSSDAL: Let me change gears here for just a minute and talk to you about another quote of yours, actually, if I might, that I think might raise some heckles once people think about it for a second. "You have no privacy; get over it."

MCNEALY: Get over it. So that was taken slightly out of context. I'm not upset about that because I think it's an important conversation to have and what I was telling people was you have no privacy. Your doctors have your medical records. Your bankers have your financial records. Your school has your grades and all the rest of it. To think that you have privacy, you don't. But you can expect appropriate privacy.

You don't want absolute privacy. You do not want your medical records locked up in a safe at home with only you knowing the combination. You want some level of appropriate privacy and so the quote got taken out of context but it allows me to actually get into the conversation about at its basic form, you need to know who's who. And when I logged into the network here, I did two-factor authentication about who I was.

RYSSDAL: Right.

MCNEALY: Then you need to know what's what. In other words, what information is mine versus Rebecca's versus George's. And then you need to know who gets access to what and privacy and security and identity and safety is all about knowing who's who, what's what and who gets access to what. Very simple to say. The technology is there to go make it happen but the processes and the anthropology of operating on the net, we're still believing and operating that it's all a physical world, which it isn't. I don't know who's on the other end of the net unless I truly verify.

RYSSDAL: But you're a guy who's built the company around this network and you carry your access to that network around in a little clip on your belt, and what's to say somebody can't figure out your password somehow and gain access to Scott McNealy's confidential Fortune 500 company information?

MCNEALY: I'm gonna know pretty quickly when my card's gone 'cause I check email probably 40 times a day and I can't check my email without my card. I can't get in through the next door without my card and I can't verify myself to whoever without my card. I'm gonna know pretty quickly. The second I lose my card, I call central administration and they turn my card off, kinda like when you lose your Visa or MasterCard or American Express card. Boom! They turn it off and all of a sudden now that won't work. That's if they can also get my password which I change on a regular basis because my IT department says it's time to change your password.

RYSSDAL: What's your legacy gonna be?

MCNEALY: My four boys.

RYSSDAL: Hm.

MCNEALY: They're cool. They're really neat little guys.

RYSSDAL: When you sit down with them and talk about the stuff that really matters, what do you teach them? What do you tell them?

MCNEALY: We basically spend a lot of — it's interesting. 'Cause when I drive them to school, we'll have conversations. I won't let them listen to Harry Potter tapes and I say, "Let's talk. Let's talk about stuff." And they're doing stuff like current events and we talk about the two sides to every current event, not necessarily what they read is the other side.

And so we talked about Katrina and whose fault was Katrina. Was it the people who moved into the hurricane belt? Was it the people who built a house 18 feet below water? Was it the government's fault that the levy wasn't built right? Was it the state or the local city's fault? Who was it? And all these questions aren't exactly clear but a lot of people are running around throwing a lot of blame.

And so it was a really wonderful conversation and at least the three older ones were sitting there thinking about this and they got very quiet and very interested in the conversation and started asking some very interesting questions. And it was very — it was a little disappointing to my oldest who had kinda written up his theory of how the government totally messed up and he hadn't really thought about some of the other questions. So he was kind of upset that he was gonna go turn in his current events written up the way it was written in the media and I think it was a disturbingly wonderful experience for him to think "Maybe I didn't think through this thing as well as I should have."

RYSSDAL: Why aren't you spending all your time with them? Your 51, 2 years old? You don't need to work.

MCNEALY: They're in school. They get aggravated when an old guy's hanging around the schoolyard all day. But, you know, I don't want them to see me hanging around eating potato chips and watching football games. I want to be a little better role model and I want them to see we're doing some things that are really changing the world and that they can go do that kinda thing, too. So I think being a good positive role model is also very important.

RYSSDAL: Oh, yeah. All right. So the network's the computer and that's great but there's this thing out there called the iPod which let's me hook up to the network and find all this cool music and walk around with it. I mean how do you reconcile that?

MCNEALY: You know, things move in a pendulum. Things show up local state and then move back to the network. Why doesn't your cell phone with nice stereo headphones allow you a play list and have a network-based catalogue so if I lose my phone I don't lose my songs 'cause they're out on the network. It's kinda like TIVO stores all your stuff locally.

Why don't we have a set-top box personal video recorder service that allows me to not have to record anything but say, "Oh, I heard there was a really great show on two days ago. I didn't record it," and just go back and replay it from a video server somewhere out over the network.

That's where we'll end up and so there'll be some very interesting short-term and wonderful businesses to be made by doing that and I don't deny that but we're gonna stay focused on the network computing model and make sure we support that model with the best technology so as things move back into the network and off of the desktop or out of your pocket, we have the right technology.

RYSSDAL: There were four of you that started Sun back 20 some odd years ago. Why are you the only one left?

MCNEALY: Andy Bechtolsheim is the other one and he's at Sun and he's working like crazy and he's developed one of the best server product lines that we've ever launched. He and I are both working full time and incredibly motivated. He was Employee No. 1; I was No. 3. Vinod is No. 2 and he's been working at Kleiner Perkins and is now affiliated with Kleiner in the venture community. And Bill Joy, the other one, is also at Kleiner Perkins. So they're all part of the family and they've all stayed very close and they're doing venture. Andy and I are still doing computers.

RYSSDAL: Did you guys draw straws to figure out who got to be No. 1 and No. 2 and No. 3?

MCNEALY: Andy had the technology so he got to be No. 1. Vinod found Andy so he got to be No. 2 and I got to be No. 3. I was just the manufacturing guy at the start.

RYSSDAL: Where does this company from here?

MCNEALY: I think we just need to execute on what we're doing. We got to make sure we don't overreach, get overbroad in the scope and scale of what we do. I believe more things are gonna get digitized, more things are gonna get connected to the network. We're adding millions of people every week. We're adding millions and millions of devices to the network. There's RFID events getting recorded. There's Java virtual machines being put into everything, including hundred-dollar DVD players and Sony PlayStations and other technologies like that.

It's gonna create an enormous — the opportunity for high-performance technical computing to do human genome research or to solve the bird flu problem, do distance learning, telemedicine, home shopping — all of these things — electronic warfare, you name it. No matter what you like to do, we got a way to go do it electronically.

RYSSDAL: Is there, do you think, a way that the computing industry as you see it develops with more than one company standing at the end doing it right?

MCNEALY: There has to be. There has to be choice. There has to be more than one and by us driving open interfaces and open source and community development, we're almost guaranteeing we'll have competition and that's a good thing.

RYSSDAL: But how smart is it for your shareholders?

MCNEALY: You know what? If we could go out and establish a guaranteed monopoly, we'd do it. But you know what? There've been — every other company practically that started after IBM and then after Microsoft is gone trying to establish a monopoly position. They're all gone. We didn't.

We tried to establish a choice-based position and we're still rocking and rolling and thriving and growing and I think that's — you know, if you can get it, it's a good business. If you don't, you lose all your shareholders' money. I think we've done very well. I got married 12 years ago and the stock was at 1. It's at 5 something today. That's not a bad return.

RYSSDAL: You forgot the $63.00 a share in the middle though.

MCNEALY: I didn't value it at that. The market did. But if you hung on for the last 12 years, you're pretty happy.

RYSSDAL: You wrote a senior thesis at Harvard, the topic of which was antitrust. What was the title of that paper?

MCNEALY: I can't remember. That was a long time ago. But it was antitrust in the transit bus industry.

RYSSDAL: Gripping, I'm sure.

MCNEALY: Yeah, it was pretty exciting for me. It actually turned out to be a more useful thesis for me than I think most people's theses were.

RYSSDAL: You're obviously a big fan of capitalism and you've pointed out that it clobbers only those who don't perform and monopolists. What is it with you and antitrust and monopoly?

MCNEALY: There's no biggie there. It just happened to be coincidence. I think the thing that I've always tried to do is go after big market opportunities. Big market opportunities are the way you can generate the biggest returns and it's also more exciting to go after big deals than little deals and make big changes than little changes and you got one shot in life. Why not go after the big fish?

RYSSDAL: Sure, just to finish it up. We're not in your office up in Silicon Valley now. We're down here in a conference room someplace in L.A. I'd imagine though based on what I've read, there's hockey gear all over that thing. I mean what do you do to relax besides hang around with the kids?

MCNEALY: I watch them play hockey, watch them hit golf balls. I watch them play soccer, basketball. Make sure they practice their piano and make sure they got their homework done and I play hockey and golf myself and I'm a Sharks fan. In fact, I'm gonna go watch the first preseason game between the Kings and the Sharks, which I'm sure the Sharks will win.

RYSSDAL: Something wrong with hockey in L.A. though, right?

MCNEALY: Nothing wrong with it at all. It's a great sport, man. It's the best sport out there.

RYSSDAL: Scott McNealy used to be the CEO of Sun Microsystems. He had that job for 22 years. He's the chairman now. Mr. McNealy, thanks a lot for your time.

MCNEALY: Thank you.

[NOTE: The text above is an extended excerpt of the interview and may have been edited. It should not be taken as a verbatim record.]

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