Whilst the take-over of Cadbury’s by Kraft has generated substantial interest in the UK, a more significant battle has taken place in the enterprise space – that of the acquisition by Oracle of Sun Microsystems (http://www.sun.com/). Oracle has paid $7.6 Billion for the business and has high aspirations for the combined operation. Tony Crowhurst, FSN senior writer reports on the significance of the Oracle/Sun tie-up.
The deal which was initiated last April required the approval of the US Department of Justice in the US and EU competition authorities – US approval came in August 2009 with the latter’s endorsement coming this week. In broad terms the recent consolidation within the IT sector has further delineated technology providers – the large “all you need vendors” and the boutiques. For Oracle, this was a deal that they had to do. By acquiring Sun, Oracle finally has the technology spread from hardware and software to compete across the technology space. Adding Sun’s SPARC microprocessor-based server hardware, Solaris operating system, and storage systems to Oracle’s database, middleware, and enterprise application software products allows Oracle to sell fully integrated systems and to compete more directly against rivals such as IBM and Microsoft. It also leaves SAP in a quandary as to where they go in building an end to end technology platform.
A major delay in approval – especially in the EU – was in relation to the concern that a credible open source vendor was being gobbled up by a large proprietary software vendor. Those concerns have been assuaged and to Oracle’s credit they are talking about delivering “complete, open, integrated systems”. Delivering on that vision - whilst ensuring that revenue growth is maintained - will be the challenge. We can be cynical about Oracle’s motives but not about their strategy – as enterprises look to open source vendors for solutions that are more flexible and cheaper so they move away from the traditional vendors. Microsoft has seen that in email and collaboration as have other vendors in the corporate performance management space where suppliers such as (http://www.adaptiveplanning.com/) and Pentaho (http://www.pentaho.com/) have come to the fore.
So what will the impact be for customers and prospective customers, partners and competitors?
The prospect for customers and prospective customers is promising. Sun has been the darling of this sector for a long time but the impact of the tech crash was never firmly exorcised and revenue has been under pressure for a while. Sun lost $1.7 billion in fiscal 2008. 2009 losses were significantly less and the prophets of doom had already buried Sun. Now, customers who would probably be looking to HP and IBM (for example) now have more reason to stay and Oracle could skilfully use Sun's products to improve its own software. Ellison is quoted as saying Sun's Java programming language is the "single-most-important software asset we have ever acquired” – he’s probably right. Java is used to develop applications for websites and for products as diverse as mobile phones and DVD players which play well into the goal of ensuring that Oracle is the vendor of choice across sectors. There is also synergy - Sun's Solaris operating system is a leading platform for Oracle's database software. Perversely, the other factor is Microsoft SQL Server which is already keenly priced with Oracle DB - and with SQL in the cloud (www.microsoft.com/windowsazure) Microsoft will be aiming to grow market share and revenue whilst reducing total cost of ownership. Oracle now has the capability to do the same; reduce prices and at the same time keeping shareholders happy.
For partners in both camps it also promises to be a fruitful alliance of hardware and software offerings. Although for the channel, it’s too early to forecast who will be the ultimate beneficiaries.
In the competitive space, IBM should be kicking themselves - they missed out on a significant opportunity. IBM did bid for Sun but anti-trust worries may haved played heavily in the decision and after initially offering $10 per share they dropped their offer by $0.60. Oracle stepped in at $9.50 per share – the rest is history. For HP and its attempt to become broader vendors this takeover is a worry. HP has been good for Microsoft as well as for Sun. In fact last year HP signed a multi-year deals with Sun that enabled HP to distribute and provide software technical support for Sun’s Solaris 10 Operating System on the HP ProLiant server and blade system platforms. With Oracle now owning Sun what is the future?
For SAP the prospect of an invigorated Oracle is just another problem. SAP’s purchase of Business Objects has given rise to overlapping technologies competing for space. SAP still lacks the end to end offering (hardware) that Oracle now has and that Microsoft is capable of leveraging through it and its large partner base. Will rumours of an SAP Microsoft tie-up resurface?
One major question is the long term future of MYSQL. Oracle has little to gain from killing off MySQL. Should it to do so, MySQL users would be far more likely to run away from Oracle than adopt the Oracle Database. By keeping MySQL alive, Oracle has the potential to up-sell MySQL users to other Oracle products and services, while also using MySQL as a warhead to attack Microsoft’s installed base at the low-end.
The ink is barely dry on the EU’s approval and deals this size take some time to digest suffice to say that it’s a great time to leverage this news when evaluating pitches from technology vendors.
