Monday morning, we found out that the Sun might rise again. Oracle has decided to spend approximately $7.4 billion to buy its longtime Silicon Valley neighbor. A combination of these two stalwarts, both instrumental in the rise of the Northern California high-tech power base, would signal a regretful passing of a member of the old guard. But times change and Sun did not change with them (much as Digital, Compaq, SGI, Cray and others before it). The question is, Why would Oracle, a company that has been gobbling up companies over the past few years (including Siebel, PeopleSoft and BEA), but with its own set of challenges, want to move into hardware -- a commodity, cutthroat business? The answer is it probably doesn't -- at least not directly. But this acquisition is attractive to both Oracle and Sun for different reasons, although it may not be so attractive to end-user organizations. Let's look at who gains through this acquisition, to see who the winners and losers might be.
From Oracle's perspective, an acquisition of Sun would give it control of Java and the ability to kill off an imminent threat to its database hegemony in the MySQL open-source database. Control of Java, at the core of Oracles enterprise software products and similarly for many of its competitors, would be a real coup for Oracle and Larry Ellison. This can't make IBM (or SAP) very happy, since it has also built its key business software offerings around Java. It also puts Oracle in more direct conflict with Microsoft beyond the database and into its middleware efforts with the .Net framework.
Obviously, Oracle is buying a large hardware business. With it will come a chance to upsell to any Sun shops that haven't yet installed Oracle's back-office suites. But Oracle has attempted to get into the hardware business more than once in the past and was never very good at it -- always allowing its products to die a slow, silent death. I believe that Oracle will not stay in the hardware business very long. My expectation is that Oracle will take the software assets (primarily Java and Solaris), perhaps keep some key hardware subsystems (networked storage -- an increasingly important market for Oracle's analytics, BI and databases) and phase out or sell off the commodity hardware business (perhaps to IBM or HP). There is no advantage in Oracle owning a hardware business. If anything, it is a disadvantage, both in terms of alienating partners such as HP and Dell and in the challenge of making a profit on hardware. If Oracle's true intent in this acquisition is to stay in the hardware business, then the board needs to do some serious soul searching.
What about Sun? It gets to stave off its forthcoming collapse. This deal is really a lifeline to Sun, which surely needs one. Sun has not kept up with the challenges of the new commodity and open-source-based needs of its customers. It is top-heavy and can't compete with leaner suppliers like Dell, HP and even IBM. IBM's offer to buy Sun fell apart on a number of points. But the Silicon Valley philosophies of McNealy and Ellison are more closely aligned than those of McNealy and IBM, so this may be a better fit overall. Nonetheless, I expect significant changes to come to Sun once the acquisition is completed, including substantial layoffs and the jettisoning of numerous products and technologies.
This may be a good deal for Oracle and Sun, but is it good for the marketplace? Not really. Oracle is more controlling, which could ultimately mean fewer choices and increased prices. Oracle has a history of being "pricey," and this probably won't change. Other questions of the moment: How will Java licensing change? Will there be Oracle proprietary extensions (as in SQL)? What will happen to Solaris and Open Solaris? Oracle would be smart to spin out the hardware business as soon as possible. This may actually benefit IBM, HP and other Unix server suppliers, and may also signal the death knell for the Sparc processor (to the benefit of Intel and AMD).
So, the winner in this event is clearly Oracle, but Sun wins as well, since it would have floundered without a rescue. The losers are the end-user organizations, which can now expect higher prices for software and fewer choices; "open source" is an ugly word at Oracle. Of course, IBM and HP are short-term losers, but they may ultimately gain if the Sun hardware business suffers or is sold off. And Microsoft and/or Sybase may gain share at the edges if Oracle loses customers due to heavy-handed terms and pricing, or may gain some MySQL accounts.
Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.
This story, "Oracle-Sun Deal: Who Stands to Gain?" was originally published by Computerworld.