By Kris Tuttle
Primarily this is a defensive (meaning not very creative) move by Oracle (ORCL). IBM would have been a measurably stronger competitor for Oracle with Java and MySQL added to their formidable software stack. So the real value for Oracle is more in IBM not having Sun rather than direct benefits for Oracle. All their statements to the contrary are only corporate posturing. That fact is not going to be good news for Sun employees, who can expect Oracle to make the Sun acquisition highly profitable by dramatically eliminating costs, shutting down initiatives and exiting businesses.
We’re aware of the fact that many commentators are taking Oracle comments at face value, that they are going to create a real full service counter to IBM in the industry by preserving all the major elements of the company and adding more global services. We see no chance that this will actually happen. Failing that, speculation is that HP (HPQ) will act in concert with Oracle to present a unified solution to large customers, but we see the Oracle move as more threatening to HP and that the latter will be extremely aggressive in undermining Oracle’s efforts.
Oracle may do some constructive things with the Java assets, which hold great sway in the enterprise and are tied with Microsoft .NET in most corporate development environments. However, Oracle doesn’t exactly inspire confidence in the hearts and minds of end users. That they will be around is a certainty but whether they will put the community and customers first is more questionable.
MySQL would seem to be doomed in the hands of a proprietary monopolist like Oracle. However, that may not be quite the case. After all, there are open source licenses in force and a community in place. This will help to keep MySQL viable in the short and medium term. What steps Oracle takes will influence the decisions of the key developers and users. The rhetoric won’t be a tell at all.
From an end-user perspective, we can be fairly sure this will force some strategic rethinking. Java and MySQL in the hands of Sun meant they were safe and stable and owned by a company that wasn’t much of a threat. Now it’s a bit different. Oracle is seen in the same light as Microsoft - providing a valuable set of technologies and services but also charging heavily for it, thanks to their proprietary IP and very fat operating profit margins.
Implications by company:
Microsoft (MSFT) - Probably good news. IBM would have been more customer and open source friendly than Oracle is likely to be. It makes Java and MySQL, along with frameworks based on them, more similar to the .NET and SQL Server choice. Oracle may try and take OpenOffice into battle but we’ve seen similar efforts from Oracle for the past 10 years or so and they have never been able to “get” productivity applications.
IBM - Looks like a bumbling loss from where we sit. It may force them to take a more serious look at Red Hat (RHT) which is doing very well in the enterprise. We don’t know Red Hat management well enough to say if they are up to the task but they are sitting on a powerful industry opportunity right now. IBM is big enough that it won’t affect the company but we expect the IBM Software Group to be scrambling this week.
Cisco (CSCO) & HP - Many Sun customers are going to have to look at alternatives. HP is the market leader in servers and this will bump up the pace of their share gains vis a vis Sun. Cisco will have work to do in order to break into the server market, but this event will spur some percentage of Sun server customers to start a fresh evaluation, which will help Cisco get a foot in the door at some large accounts.
EMC & VMware (VMW) - EMC is likely to pick up some share in the storage market and VMware gains some strategic value, as in infrastructure layer, that can help improve the fluidity of server infrastructure and enable a containment and migration from Sun servers in places where that will be happening.
Probably also good for: Salesforce.com (CRM), Sybase (SY), Google (GOOG) and Amazon (AMZN).
Probably also bad for: SAP which is increasingly irrelevant, with software that isn’t aging well.
Disclosure: At the time of this writing Research 2.0 does not have an investment position in any of the stocks mentioned in this post.
