In a move that caught most of the industry by surprise, Oracle has swooped in and purchased SUN Microsystems after IBM left them at the proverbial altar.
SUN has been struggling for some time after seeing it’s industry-leading role decline. The commoditization of hardware and SUN’s slow move from proprietary (and expensive) processors were a contributor to its loss of leadership. In spite of this, their leading role in software has helped them remain a player. Solaris, Java and a host of other software products have made them a thought-leader while contributing less to the bottom-line.
Oracle, meanwhile, has become a juggernaut and been on a major buying spree over the last several years. Noteworthy acquisitions include BEA, PeopleSoft, and Siebel. Now they’ve added SUN to their list and the big questions are on the table.
What will the landscape look like after the merger of these two organizations? How will the market be impacted? Did IBM miss a major opportunity and how will that affect them? What products from both organizations will survive? What will happen to Java and the many other open-source products that SUN has supported?
One thing that Oracle has historically done well and continues to improve is their process of merging new products into their existing line. They have demonstrated a growing competence in selecting the best products from new acquisitions and quickly pruning out those existing products that are not market leaders. Oracle has also proceeded with caution in making decisions that negatively affect stakeholders when acquiring new companies and products. For example, they introduced “Applications Unlimited” to reduce fears that PeopleSoft and Siebel users would be required to switch to Oracle’s in-house E-Business Suite in a forced move.
Similar fears will arise with this latest move. Obvious concerns are how this acquisition will impact JAVA, Solaris and many of the Open Source products that SUN was involved with.
Perhaps the greatest concern will surround the SUN hardware business. Oracle has had limited experience in acting as a hardware vendor. Their recent announcement of the “HP Oracle Database Machine” is one of the few examples. Looking closely at that product it is clear that Oracle leverages the hardware as a commodity and generates significant revenues from the software that is used. In typical configurations the hardware is a very low percentage of the overall pricing.
Oracle has several choices with the hardware. No doubt they will continue to support the hardware business that SUN has already. However this purchase will probably slow sales of new hardware dramatically since buyers are unsure of what is going to happen next. Oracle could chose to spin off the hardware to a separate company or use it as they have with HP to package with their profitable software.
At a deeper level, SUN has signficant hardware design experience which could also be leveraged for special-use hardware products assuming that those key people are retained.
There are still many questions that will need to be answered over the next year. My hope is that Oracle will handle this acquisition better than its critics will expect and that the end result will be better for the overall market than if IBM had made the purchase.
With Collaborate 2009 (in Orlando) just weeks away, this acquisition will no doubt be THE conversation topic at the gathering.
