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Oracle aims to acquire Sun

Oracle aims to acquire Sun

Oracle continues to aggressively expand in order to become a 'one stop shop' for enterprise-scale organisations. Through the acquisition of Sun, Oracle's “stack” now encompasses both application and middleware software as well as servers and storage.

Oracle continues to aggressively expand in order to become a 'one stop shop' for enterprise-scale organisations. Through the acquisition of Sun, Hydrasight notes that Oracle's “stack” now encompasses application and middleware software as well as servers and storage. Hydrasight notes that Oracle has been positioning itself to go head-to-head against yesterday’s IBM and today’s Microsoft. Its recent strategy to 'surround' SAP, rather than attack it head-on, has proven to be successful and has staved-off the continued expansion of SAP in large enterprise accounts. Oracle now continues to expand its largely traditional approach to enterprise software by announcing its intention to acquire Sun Microsystems.

While this obviously creates a new ‘vertically integrated’ (or at least vertically oriented) enterprise IT vendor supporting both software and hardware solutions, Oracle’s move fails to recognise major trends in the IT industry, at least on the face of it. Both Microsoft and IBM have been preparing for the future of enterprise computing with its greater emphasis on off-premise and service-centric computing. EMC/VMware has also driven much of the pragmatic change with support and a strong vision for server virtualisation. This evolution has created more market interest and stronger viability for the development of “enterprise cloud computing”.

Put simply, we note that Oracle's most recent acquisition highlights that it is still focused on supporting the complex, internal client/server and n-tier style of enterprise IT environments and that it remains largely in 'cloud denial' at this time.

We also note Oracle's aggressive (perhaps optimistic) ambitions to drive greater profitability from Sun while rapidly integrating it into their “stack”. We believe Oracle expects unrealistic and unachievable improvements in Sun's profitability over a short period of time and in a period of global economic downturn. Oracle will only be likely to achieve its objectives through aggressive and brutal reductions in Sun's workforce and operating costs.

Given that both companies operate at a global level, we expect to see such reductions occur equally in Asia Pacific as elsewhere. Moreover, both Sun and Oracle remain focused on large, complex organisations at a global level and therefore domestic and/or regional support for smaller organisations are less likely to find Oracle’s ‘solutions’ attractive. Nonetheless, Oracle’s substantial revenue base combined with the remaining assets of Sun will enable it to market itself as a strong supporter of mid-sized organisations for the immediate and mid term.

In contrast to Oracle's marketing, our research shows that Oracle's efforts at integration remain largely superficial at this time. This is evidenced by the slow and uncertain path to Fusion - to say nothing of the challenges of integrating previous acquisitions such as BEA. We note that management and operation of Oracle's acquisitions remain largely autonomous to the point where Oracle’s business strategy is to clearly focus on recurring license revenues and that the customer's benefits remain secondary to Oracle's accountants and shareholders.

For Oracle to succeed in the long term it will have to convince the market that it can deliver on its promises of an integrated stack and/or provide more flexible software licensing models.

From a software perspective, we believe the acquisition heralds the end of Sun's romance with open source software, which had confused many organisations in Asia Pacific. In fact, while both Sun and Oracle were probably the most ‘vocal’ organisations espousing the ‘new economy’ and the benefits of open source software during the late 1990’s, Oracle in particular failed to translate this ‘new age thinking’ into revenue, and instead, decided to focus more on traditional software licensing markets. Oracle’s recent interest in acquiring Sun Microsystems suggests Oracle now sees an opportunity to support the “new, new economy”, again in denial and/or defiance of the changes in enterprise software development and licensing practices that have been prevalent over the last 30 to 40 years but that are now slowly changing as a result of the trend towards cloud computing.

Hydrasight notes that the majority of Asia Pacific organisations remain uncertain as to how, when or why to use open source software that is effectively free but has been relatively unsupported. As such, Sun's licensing and terms for much of its software has previously been a stumbling block. We expect Oracle will rapidly address the open source issue but this may well introduce new concerns for Sun's existing (software) customer base.

We note that Sun’s software portfolio goes well beyond Solaris / OpenSolaris. In many cases that software portfolio will now overlap substantially with Oracle. Significant examples include operating systems (e.g., Oracle Linux versus Solaris / OpenSolaris) plus middleware including identity management, portal and, not least, database such as MySQL.

Interestingly, as a positive for Oracle, the acquisition of Sun (and to a lesser degree BEA) puts Oracle in control of what remains a major foundation for heterogeneous enterprise software development—namely, Java. This may make companies such as IBM increasingly nervous and/or may ultimately make Java less attractive to end user organisations.

From an industry perspective, we also note that the acquisition will impact Oracle's commercial partnerships with hardware vendors. This includes HP (e.g., Database Appliance), which had shown signs of early appeal to certain Oracle customers. Such interest will now, understandably, be put on hold.

Michael Warrilow is a principal analyst at Hydrasight. He is based in Sydney, Australia.

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Tags vendor consolidationmergersOracle

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