Oracle Acquisition of Sun Makes Perfect Sense

The reported acquisition of Sun Microsystems (JAVA) by Oracle (ORCL) today makes a ton more sense than IBM's (IBM) earlier failed bid. This compact, if it succeeds, will bring as good an end to an independent Sun as the pioneering (yet long flagging) IT vendor could have hoped for at this sorry stage in its history.

But there are much larger implications in Oracle's latest super-grab than Sun's demise and assimilation. Among them is the fact that IBM now -- for the first time, really -- has a true, full and global counterweight to its role and influence. Oracle plus Sun aligned with Hewlett-Packard (HPQ) (which I fully expect) meets and begins to beat IBM at all the important full-service IT games.

This is truly healthy for IT and the global IT marketplace. IBM's earlier purported bid for Sun always smelled bad to me. It was, it turned out, mostly a red herring. Perhaps Oracle needed the IBM roller coaster ride to focus its intentions. Nonetheless, the outcome is optimal. It bodes well for cloud computing too, as Oracle just about overnight becomes a cloud force to reckon with. I always thought Larry Ellison was just biding time on this one. The recession has hastened the timetable.

Other than IBM's unassailed hegemony, the other losers in this are Microsoft (MSFT) (actually possibly creeping to irrelevancy faster than anyone could have imagined three years ago), SAP (SAP), and Cisco Systems (CSCO). Open source, too, may take a hit, as I don't expect Unbreakable Linux to remain Oracle's point on the OS arrow. Solaris will be the prime OS, meaning Oracle's channel pipeline to Red Hat (RHT) will shrink. And MySQL will be a means and not an end for Oracle, which would, of course, prefer an Oracle 11g cloud instead.

Oracle will have little interest or need for open source middleware or service oriented architecture (SOA) components. Further, given Oracle's early and deep interest in Eclipse and OSGi, the Java tools will stay fully open (with a lot of Oracle wizards embedded across the database and other middleware). The tussle for influence between Oracle and IBM in Eclipse and the Java Community Process (JCP) will be great fun to watch in coming years. Again, this is healthy.

No other company has shown an ability to merge and integrate at the massive scale and complexity that Oracle has. Its acquisition spree that began 10 years ago is unprecedented in its scope and level of success. We have no reason to suspect that the way it handles Sun will be any different.

Winners on the deal include Java itself in the fullest and broadest sense. Oracle and IBM are the premier Java vendors, and the might of IBM (and its customers and developers) in the market will force Oracle to keep Java open, while Oracle's penchant for control and commercial success will keep Java vibrant, safe and singular. I expect the old BEA Weblogic implementations now at Oracle to gather some minor bundles from Sun's software portfolio, but Sun's enterprise software stack (for all intents and purposes) is history. I can't see Glass Fish or Net Beans going anywhere but bye-bye. Same with the SOA stuff.

Most interesting will be the way that Oracle matches the Sun assets against HP's burgeoning partnership with Oracle. Will HP perhaps buy Sun's hardware and IC IP outright after the Oracle acquisition is final? I'd bet on it. [Disclosure: HP is a sponsor of BriefingsDIrect podcasts.]

The Exadata announcement last fall is a good example of what to expect. Business intelligence is the killer enterprise application of the day (era), and Oracle and HP aim to win. Coupling Oracle BI and business applications is something special ... better potentially than what IBM and SAP can do. Should we expect from this Oracle-Sun merger some more love between IBM and SAP? Oh, ya!

We should expect to see a major go-to-market push by HP and Oracle, with all kinds of appliances and solutions portfolios. Both Oracle's and HP's love of virtualization allows all kinds of neat packaging. Expect some of the industry's premier on-premises cloud solutions ASAP. We now have a land grab race for the modernized data center/private cloud between Oracle/Sun/HP and IBM. What's more, HP with all the old DEFC stuff, plus Sun's Unix, may keep Unix alive and well while keeping IBM at bay with its mainframe lust.

On the blue sky front, consider if Apple (AAPL) and Google (GOOG) get closer to the Oracle-Sun-HP trifecta. Wow.

Larry Ellison correctly predicted a few years ago that only a few IT companies would remain. Maybe we should just remove the "IT" and keep it at only a few companies will remain -- and Oracle will be one of them.

Comments

[Manish Shyamsukha]

I have a question for the author. Sun is regarded as the pioneer in the server market and yet Sun is a "business model" failure. So even though Sun' servers are best in the market, there are no buyers for it (considering the "high-end servers"). The question is why would HP touch Sun's hardware (servers) business?

2009 Apr 20 10:18 AM

[Winter Lightning]

Pardon me, but isn't it possible that this might kill the ORCL-HP relationship? ORCL suddenly has all it needed from HP (and RedHat), but better engineered (Sun's X-series and blades) and more scaleable (Solaris on SPARC and x86).
HP's record of taking enterprise-class server technology isn't great (DEC VMS, via Compaq; Tandem). HP seems to think that this stuff can be turned into a commodity like printer ink.

2009 Apr 20 10:27 AM

[bcncv]

I agree it makes business and technical sense. Still, I can't imagine a bigger conflict of cultures. Integration will be interesting, to say the least.

2009 Apr 20 10:49 AM

[squark62]

let's see....oracle & sun, db2 & ibm, macosx & power mac, cisco ios & cisco datacenter servers, google & android are becoming compelling trend stories in the tech world. what's next? microsoft & dell? if so, my alma mater HP might be looking for a software acquisition soon. HP just acquired EDS which i thought was a great move. now it's apparent to me there is another weakness HP needs to possibly fill to stay competitive.

2009 Apr 20 11:15 AM

[Thomas J. Gordon]

i agree with Winter Lightning. Oracle better say something quick about the Sun hardware business. i would guess not much db2 sells on sun hardware. but hp/oracle is a huge platform, they have those ads in the journal about a database machine and I would guess hp is going to get nervous about what oracle salemen are going to say about hardware in their sales cycle.

2009 Apr 20 12:27 PM

[tziv]

good luck on the integraion orcl. tottaly different cultures..this is gonna be a challenge... thegrubspot.com

2009 Apr 20 02:03 PM

[jakeonfire]

I think you underestimate the role of open source in the future Oracle/Sun. Sun has the whole hobbyist--small-business world, and even some budget-minded larger businesses interested in JEE now with Eclipse and GlassFish. That's a good thing for their enterprise software, support, and hardware. In the larger picture, open source is king, especially in cloud computing. The benefits are too great to throw away.

2009 Apr 20 02:05 PM

[jaxon]

Was this before or after Obama and the Feds announced they were pushing to tax all ecommerce on the Internet? I'm sure net-retailers will upgrade MySQL/Java solutions less as their profit margins decrease.

tinyurl.com/obamawebtax

2009 Apr 20 02:08 PM

[Mafeking]

Sun has three broad business areas: Hardware - servers and chips, software - Java and associated frameworks and Services - a reasonable professional services outfit.

Oracle can improve the efficiency and profitability of the Sun services organization and move their (Oracles) more aggressive and costly professional services people into that space. There is money to be made in this area.

But the other two areas are more problematic.

In hardware Sun is losing market share to the increasing power of the mulit-processor Intel and AMD chip sets. Certainly the Sun Sparc and n-way architecture has greater performance, but this performance is only required in very demanding areas. Oracle has bought a declining business in this area that is likely to go head to head with HP's servers (not cooperate with HP). I am not sure Gardner is correct in his assessment here.

Sun's software offerings are another story. Sun invented (Gosling, et. al.) Java, Java libraries and Java frameworks that created almost a revolution in the software industry by improving software portability and robustness. But has never been able to truly monetize the Java story. I suspect the Sun software unit is not profitable. The forces of Open Source Java have just been too strong.

So Sun's software business is also a story of declining profits.

In the final analysis I think Ellison has bought Sun for their customer base and the synergies and penetration that Oracle can achieve into the Sun accounts and customers. Oracle is not going to make a lot of profit from Sun's hardware and software.

2009 Apr 20 02:20 PM

[Dana Gardner]

HP could take Sun's server sites and build them out with support and/or added HP hardware. Sun also has x86 servers based on Intel and AMD, and those could be added or swapped for HP Blades. Being best in tech is not always being most successful ... the need for high-end servers was eroded by advances in software and applications. Still, the niche at the top is long-term, and HP plus Sun there is a good balance to IBM.


On Apr 20 10:18 AM Manish Shyamsukha wrote:

> I have a question for the author. Sun is regarded as the pioneer
> in the server market and yet Sun is a "business model" failure. So
> even though Sun' servers are best in the market, there are no buyers
> for it (considering the "high-end servers"). The question is why
> would HP touch Sun's hardware (servers) business?

2009 Apr 20 02:47 PM

[Dana Gardner]

Oracle has always resisted hardware, preferring to partner with hardware makers. HP is in favor over IBM and Sun. HP has done very well with DEC, Tandem and Compaq, so I disagree there. This should not divorce HP-Oracle but cement them. Because HP does not play in databases, middleware and business apps, HP is the best hardware partner for Oracle.


On Apr 20 10:27 AM Winter Lightning wrote:

> Pardon me, but isn't it possible that this might kill the ORCL-HP
> relationship? ORCL suddenly has all it needed from HP (and RedHat),
> but better engineered (Sun's X-series and blades) and more scaleable
> (Solaris on SPARC and x86).
> HP's record of taking enterprise-class server technology isn't great
> (DEC VMS, via Compaq; Tandem). HP seems to think that this stuff
> can be turned into a commodity like printer ink.

2009 Apr 20 02:50 PM

[Dana Gardner]

Oracle has done well at culture assimilation. It removes the culture of the acquired and makes it Oracle. Oracle has a strong and disciplined culture, which will only improve Sun's. Remember, these headquarters are 20 minutes away from each other. And engineers and developers need their jobs. Sun will lose a lot of jobs, but the good people will find a good, convenient home at Oracle.


On Apr 20 10:49 AM bcncv wrote:

> I agree it makes business and technical sense. Still, I can't imagine
> a bigger conflict of cultures. Integration will be interesting,
> to say the least.

2009 Apr 20 02:52 PM

[Dana Gardner]

Nope, HP's staying out of software other than management, governance, optimization and operational efficiency looks even better now. There amy be overlap on BI, but Oracle and HP fit well as partners. Dell is in trouble no matter what, as is MSFT on the long-term basis.


On Apr 20 11:15 AM squark62 wrote:

> let's see....oracle & sun, db2 & ibm, macosx & power
> mac, cisco ios & cisco datacenter servers, google & android
> are becoming compelling trend stories in the tech world. what's
> next? microsoft & dell? if so, my alma mater HP might be looking
> for a software acquisition soon. HP just acquired EDS which i thought
> was a great move. now it's apparent to me there is another weakness
> HP needs to possibly fill to stay competitive.

2009 Apr 20 02:54 PM

[Dana Gardner]

Agreed. Oracle will make big ISVs on Sun hardware nervous if it does not make clear hardware strategy. But it needs to wait until the Sun deal is final. TIBCO for example runs on Sun in financials, but competes with Oracle on integration and middleware. But as a hardware maker, Oracle should want ISVs like TIBCO. So it does make sense for Oracle to be in hardware. HP is best place.


On Apr 20 12:27 PM Thomas J. Gordon wrote:

> i agree with Winter Lightning. Oracle better say something quick
> about the Sun hardware business. i would guess not much db2 sells
> on sun hardware. but hp/oracle is a huge platform, they have those
> ads in the journal about a database machine and I would guess hp
> is going to get nervous about what oracle salemen are going to say
> about hardware in their sales cycle.

2009 Apr 20 02:57 PM

[Dana Gardner]

Right, so sell the hardware, use Solaris and Java and sunset the Sun middleware. Take customers, sell support. But you overlook getting to a cloud power position faster because of Sun's technology. Oracle can get up and running on cloud much faster now, and that's important.


On Apr 20 02:20 PM Mafeking wrote:

> Sun has three broad business areas: Hardware - servers and chips,
> software - Java and associated frameworks and Services - a reasonable
> professional services outfit.
>
> Oracle can improve the efficiency and profitability of the Sun services
> organization and move their (Oracles) more aggressive and costly
> professional services people into that space. There is money to
> be made in this area.
>
> But the other two areas are more problematic.
>
> In hardware Sun is losing market share to the increasing power of
> the mulit-processor Intel and AMD chip sets. Certainly the Sun Sparc
> and n-way architecture has greater performance, but this performance
> is only required in very demanding areas. Oracle has bought a declining
> business in this area that is likely to go head to head with HP's
> servers (not cooperate with HP). I am not sure Gardner is correct
> in his assessment here.
>
> Sun's software offerings are another story. Sun invented (Gosling,
> et. al.) Java, Java libraries and Java frameworks that created almost
> a revolution in the software industry by improving software portability
> and robustness. But has never been able to truly monetize the Java
> story. I suspect the Sun software unit is not profitable. The forces
> of Open Source Java have just been too strong.
>
> So Sun's software business is also a story of declining profits.
>
>
> In the final analysis I think Ellison has bought Sun for their customer
> base and the synergies and penetration that Oracle can achieve into
> the Sun accounts and customers. Oracle is not going to make a lot
> of profit from Sun's hardware and software.
>

2009 Apr 20 03:00 PM

[TrezRek500]

This is really interesting. Oracle has a big services business, Sun doesn't. HP bought EDS. So now we have a new huge entity that can do the whole stack for a customer.

I swear, MSFT seems to be losing ground in the enterprise space. This fascination with the loser of the search engine wars makes no sense to me. They should focus 100% of their enterprise efforts on cloud based Exchange, Great Plains, etc.

2009 Apr 20 03:25 PM

[bricki]

Oracle has many large installations in Solaris shops. By snapping up Sun they close the door on IBM coming into these shops with DB2.

Oracle also has many applications running on a J2EE stack. With in-house Java expertise they are in a position to enhance their ability to sell as they now can go in and say that we are Java soup-to-nuts, turnkey hardware and the complete software stack - CPU, boxes, OS, JVM, app server, database, and applications. Up until now only IBM had that depth. Linux fits in that picture as well in the cloud and in highly horizontal deployments where their customer want Intel boxes by the hundreds.

2009 Apr 20 04:21 PM

[BeachRider]

HP's strategic products are on Intel-IA32 and Itanium servers (some PA-RISC remains). All of the Itanium competes with SPARC. Unless Oracle drops its IA32 business, that competes with HP, too. We need to hear from HP in the next few days. I think that HP is pissed.
IBM always did see Oracle as a competitor. Now the competition is more intense.
This is all interesting for competition. Sun will assimilate to Oracle's culture. The Sun software is the biggest wild-card. Oracle will prefer Solaris to Linux. Monetizing MySQL could be tough.

2009 Apr 20 05:28 PM

[Lightway]

Keep in mind that Oracle does run on AIX (IBM), and has for a long time now, so not sure what the future of DB2 on Solaris will be. There are alot of enterprise customers currently running DB2 on Solaris (and Sun hardware), so it would be a bad business move for Oracle to shut these existing customers out. New customers, of course it will be attempting to keep DB2 out.

It seems the DB2-Linux vs. Solaris-Oracle showdown may be coming to a new level.

I'd say the big question here is MySQL. This database has stopped being "open source" for a very long time now. It is open source by license, but the open source community only contributes a very small amount of code every year. Clearly it has a wide adoption in the web space, but how Oracle chooses to integrate it into its strategy is the question.

HP can still be the Switzerland of IT, since its hardware overlaps both company's software solutions.

2009 Apr 20 08:53 PM

[ron_paulite]

Sun servers are excellent machines, but also very expensive. No buyers because the good times are over, most companies don't have a fat budget for IT anymore.

Sometimes you buy a competitor not because of synergy but because you want to eliminate a threat. Bill Gates knew this very well in the early days of Microsoft. Sun is down, but it can still be a threat. Sun is a tech heavyweight - any techie will tell you this.

Larry Edison is definitely ahead of the game.


On Apr 20 10:18 AM Manish Shyamsukha wrote:

> I have a question for the author. Sun is regarded as the pioneer
> in the server market and yet Sun is a "business model" failure. So
> even though Sun' servers are best in the market, there are no buyers
> for it (considering the "high-end servers"). The question is why
> would HP touch Sun's hardware (servers) business?

2009 Apr 21 12:26 AM