Wouldn't It Be Crazy If This Happened?

In years past, one of the small pleasures of the holiday season was reading Byron Wien's Top Ten Surprises newsletter. Now that Byron has moved from Morgan Stanley to Pequot, we're left to our own devices. So...this is MGI's Top Ten Tech Surprises for 2007.

To make our list, the event ["surprise"] has to have a low probability of occurring [.15]. If conventional wisdom is even thinking about it, then by definition we leave it off the list. However, some of the surprises are old ideas, so old in fact that their time may finally be right - and a surprise to all. Furthermore, we are looking for seismic events that would have a significant impact for most, if not all, of the IT industry. Such an event would force everyone to reconsider their assumptions and planning guidelines, and would likely trigger after-shocks in the industry.

1. Microsoft (MSFT) Buys Yahoo! (YHOO)

After $700 million in ad spending, and untold R&D efforts, Microsoft concedes that its Live concept has done little to boost its online presence. As an alternative strategy, Microsoft announces the acquisition of Yahoo! The MSFT/YHOO deal vaults the combined entity to #1 in online search, ads and business services. The $40 billion deal finally gives Redmond an undeniable internet presence even though it comes at a time of perceived weakness at Yahoo!, which undertook a restructuring effort at the end of 2006 and is still working out the kinks in its now on-line ad platform, Panama. Microsoft plans on maintaining the Yahoo! and MSN brands, although it has plans to integrate the Yahoo! and MSN online music entities into an as yet unnamed music service. Yahoo! CEO Terry Semel announces his intent to retire at the end of the year.

2. Vista Takes Another Year to Take Off

In spite of massive hype, Microsoft Vista fails to inspire Fortune500 companies to upgrade in 2007. One reason for the delay is the massive security breach that Vista experienced in March, creating havoc for its users, and exposing the personal data of over 1 million people. In addition, the total cost of ownership [TCO] analysis is showing Vista to be a very expensive proposition, with few usable features that demonstrate increased productivity and ROI. As a result of slow corporate adoption of Vista, the IT industry is still anxiously awaiting the billions of dollars in revenue expected from the Vista upgrade. The revenue boost Microsoft and others were projjecting is now forecast to occur in the first half of 2008. While the delay has had a much bigger impact on MSFT's share price than its overall financial health, it has called into question Microsoft's ability to drive major IT industry product cycles.

3. Outbidding Oracle (ORCL), GE Acquires Cerner Corp. (CERN) and Reaffirms Healthcare Plans

In a rare show of corporate muscle, GE CEO Jeff Immelt tops Oracle's bid for Cerner Corp. and declares:

"Health care remains a core vertical focus for GE. Cerner Corp. is an excellent strategic fit for our growing health care industry software solutions group."

As a consolation, Oracle President Charles Phillips announces a cash tender offer for Eclipsys Corp. (ECLP).

4. Infosys and Accenture Announce Merger

Putting its Nasdaq-listed stock to use, Indian outsourcing giant Infosys (INFY) announced today that it is merging with Accenture in a cash and stock deal. This consulting industry mega-merger combines the low-cost, high margin resources and CMM Level 5 capabilities of Infosys with the management and strategy consulting practices and C-Level access of Accenture. The combined entity will have more than 200,000 employees globally, and revenues greater than $22 billion. Infosys Chairman and co founder N.R. Narayana Murthy and Accenture Chair William Green will share the Office of the Chairman, while Infosys CEO Nandan Nilekani will be CEO of the combined group.

5. Sun Microsystems (SUNW) Goes Private

Announced in the blog of Sun Microsystems CEO Jonathan Schwartz, the proposed deal led by two leading private equity firms puts to rest speculation about the company. Schwartz commented that:

"The public markets were not valuing our business fairly, and as a private company we can get on with the real cost restructuring of the business outside the prying eyes of the analysts."

Once the deal closes, Sun announces a massive restructuring and lays-off more than 15% of its staff in an effort to achieve sustainable profitability.

6. A Viable Open Source Framework Emerges

What began as a skunkworks project deep inside several F500 companies and two technology companies has grown into an industry tsunami. A comprehensive framework of open source software has emerged and is rapidly becoming an industry standard - not only for use by technology companies but also by Fortune 500 IT departments. The new framework, announced with great fanfare in San Francisco, is dubbed "Happy Feet" and will be formally marketed and supported by a most open source vendors, as well as IBM (IBM). IBM plans on injecting $100 million into the marketing effort. Shares in BEA (BEAS), BMC Software (BMC), CA (CA), and others traded down sharply in heavy trading after the announcement.

7. Salesforce.com (CRM) Stumbles Big Time

After easily passing the $500MM revenue mark, software superstar Salesforce.com misses its third quarter earnings by a wide margin. CEO Marc Benioff, in a rare moment of candor, admitted:

"We've undergone tremendous growth, and we let costs get ahead of us at a time when demand was soft. I fully expect to hit our 2008 projections."

Shares of CRM dropped heavily, sinking to a 52-week low, until traders started scooping up the shares near the end of the session.

8. Larry Ellison Retires

In a surprise move, Larry Ellison announces that he will be stepping down as CEO of Oracle (ORCL). Fresh from his success in capturing the America's Cup yacht race in Valencia, Spain, Ellison cited his desire to "spend more time with my wife and our new baby". He added:

"Oracle is in the best shape since I founded the company in 1977 - we're #1 in database and #1 in applications. There is never a good time to leave, but this is as good as any."

Tech industry titan Ellison will become Chairman of Oracle, and current chairman Jeff Henley will leave the board in 2008. No successor was announced.

9. IBM (IBM) Buys SAP (SAP)

Initially reported in the Wall Street Journal over the weekend, IBM confirms that it is acquiring SAP for $74.2 billion. A customer of SAP since the Lou Gerstner days, IBM sees "enormous synergy" with SAP's software and services businesses, and a great opportunity to cross-sell its technology and business consulting services into the SAP base. After paying slightly more than 5 times SAP's projected revenues for 2007, IBM expects to see significant cost efficiencies as part of the deal. The acquisition vaults IBM back into the enterprise applications business, a market it had exited in the early 1990s.

10. Legacy IT World is Back in Vogue

After realizing that over 50% of the IT workforce with knowledge of legacy systems is about to hit retirement age, CIO's size up the potential liability from loss of critical expertise and business systems information and begin to invest heavily to document and mine legacy systems. Vendors with core expertise in legacy systems environments - IBM, UNISYS (UIS), CA, and BMC Software among others, get a boost. The upcoming challenge is dubbed the 20.1K crisis and receives wide-spread press and Congressional coverage.

To be considered for our list, an event had to have a perceived likelihood of happening of less than 15%. By definition, we have very low expectations for any one of these events to occur. However, if an event does occur, we believe it will have major ramifications for users, vendors, and investors [not necessarily in that order].