Monday, April 20, 2009

Oracle Buys Sun

Well, well. After all the speculation that IBM was buying Sun, it looks like Oracle finally moved the transaction across the finish line.

Previously, it looked like the IBM/Sun deal fell apart over price and possibly strategic fit. Originally, in early April, the Wall St. Journal said the deal was going to be at $9.55. Later, IBM offered $9.40. The Sun board balked at this and IBM subsequently withdrew the offer.

With the latest news, it looks like Oracle agreed to a price of $9.50, cash, bringing the final price to about $7.4B.

Previously, I had said that I didn't get the IBM/Sun deal. With Oracle, the fit seems a lot better, but there are still some questions. The thoughts going through my head are:

  1. From a technology standpoint, the Oracle/Sun deal feels a lot more complimentary than with IBM/Sun. Oracle and Sun have always been strong partners, with Oracle's DB running well on Sun's hardware and software (SPARC/Solaris). Further, Oracle has built a lot of its applications on Java technology.
  2. With the purchase of Sun, Oracle now competes more directly with companies like IBM and HP. In the same way that you could buy DB2, running on AIX or Linux, running on IBM X- or P-Series hardware, you'll now be able to buy Oracle, running on Solaris or Linux, on Sun SPARC or x86. At the performance-oriented, high-end of the database market, this will be a big deal and will probably deliver great long-term performance gains. Oracle can now controls and can tune all levels of the stack.
  3. The only significant overlap between the companies is with the database (Oracle vs. MySQL) and the operating system (Oracle's Linux variant vs. Solaris).
  4. While some people fear for MySQL under Oracle's leadership, I'm not sure that they should automatically worry. The reality is, Oracle was going to lose a lot of database business to MySQL either way, and if not MySQL, it would have been PostgreSQL or even low-end commercial options like Microsoft SQL Server. IMO, it's far better to have MySQL under Oracle's control so that it can be better positioned as an on-ramp to the larger, more lucrative Oracle DB for high-end applications as well as a spoiler for Microsoft. Imagine, for instance, if Oracle embraced MySQL and created a set of tools that allowed developers to work seamlessly with either DB from an application point of view. MySQL could be used during development or at smaller, departmental scales, with minimal conversion to full Oracle licenses as the apps went into production and scaled up. In short, killing MySQL won't save Oracle from the other open source and low-end threats, so if it's smart, it will use MySQL to get developers on the Oracle bandwagon and then keep them there with seamless tools that work on the big DB.
  5. Bigger questions remain for software packages like Open Office. I'm sure that Oracle (and Larry Ellison) would take no greater pleasure than making the office-suite market a no-profit-zone for Microsoft. Currently, MS Office is one of Microsoft's biggest cash-cows, and so cutting into that revenue stream would help starve Microsoft dearly. That said, how much is Oracle willing to invest to do this? Clearly, Open Office is an orthogonal play to the mainline database business, with little tie-in visible at first look. Still, there might be some sort of connection that could be created if Oracle looks hard enough. This would take time, however, and it isn't clear whether Oracle would be willing to carry the development costs. That may mean that Open Office would be sold or spun out into separate entity that would have to find its own revenue stream, much as Netscape did with Mozilla. Killing it outright seems like a waste given that it still does provide competition for Microsoft; the main issue is simply the funding model to keep that going.
  6. Next, there is the question of Solaris vs. Linux. Oracle already has its own Linux variant, a clone of Red Hat Enterprise Linux. My gut tells me that the answer here is "Yes." They'll keep both. Oracle can't afford to drop support for Linux, in the same way that Oracle still runs on HP-UX, AIX, and Solaris. I would expect that Solaris will get the bulk of the performance tuning enhancements, however, with Linux relegated to a back-seat role for those who want to run on commodity hardware and software stacks.
  7. Finally, the biggest question in my head is whether Oracle knows how to, or even wants to, manage a hardware business. Oracle is currently a very profitable software business. Getting into the hardware business will inevitably drag down that overall profitability. There are a couple of options here. They could spin off the hardware business, but that would presume that Oracle doesn't want the hardware business when it buys Sun. That feels like a stretch. Sun doesn't have enough interesting software assets for Oracle to purchase the company solely on that basis, I think; Sun is fundamentally a hardware company. Second, Oracle could focus the hardware business, cutting some of the expensive development. For instance, rather than pursuing continued high-end SPARC development, it could simply focus the Sun hardware divisions on x86-based products. That would cut a lot of development costs yet still keep the company with hardware products. The trade-off would be that Oracle would be limited to whatever performance it could eek out of standard hardware, which might not be where it wants to go. Processors like Niagra might be part of the interest for Oracle, to address high-end applications. Another alternative would be to go the other way and cut all the commodity hardware and only focus on the high-end, more profitable hardware. In the end, whatever the decision, the biggest question is whether Oracle can run a hardware business competently. The company is clearly professional but it has never demonstrated hardware savvy before. Will Sun's hardware engineers remain at Oracle, where hardware is secondary to software? There is a lot that could go wrong or be mismanaged, even with the greatest of intentions.

Am I right or wrong? Who knows. There is a lot of industry speculation today. We'll see as this plays out. The one thing that is clear is that the first half of 2009 has been an interesting time in the IT space. First, Cisco announces UCS and forces an industry-wide realignment, and now Oracle buys Sun and does the same thing. It's only April. By December, the world could be vastly different.


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