Oracle + Sun = Pressure for IBM Server Business?

by Sonal Desai    Apr 20, 2009

Having rung many doorbells, Sun’s acquisition by Oracle today came as a surprise to many.

While the acquisition spells more synergies between the two companies, especially since Sun has world-class, standards-based mission-critical computing systems, and Oracle is a leading standards-based database, middleware, and applications software provider.

Together, the duo will deliver complete, open and integrated products from applications to disk have complementary assets, and common vision for complete, open and standards-based enterprise systems have best-in-class products that have been deployed globally to thousands of customers, accelerate innovation across the combined companies’ customer bases and protect and extend customers’ investment in Sun technologies.

The alliance will also give Oracle an easy entry on the cloud. This is essentially considering Sun’s vast investments into research and development for the cloud computing technology. Santosh D’ souza, CTO, Sun (India) recently told CXOtoday that the company is extensively using the cloud to harness its compute part, and for the high usage of resource delivery it offers as a single pool. This will be a substantial advantage for Oracle against on-demand competitor Salesforce. In turn, Sun will leverage Oracle’s business intelligence platforms to beat HP’s BI strategies.

For the industry, this would mean more consolidation pressures, more virluent price wars, as Oracle has always worked with Sun’s competition: HP, Dell, and others who used Oracle DB and middleware solutions for their servers. It could also mean more pressures for IBM server business. In the long run, this would mean server business margins to drop further.

With control of Java and Solaris, Oracle entry and its impact on cloud-applications would also be high, according to T.R. Madan Mohan, managing director at Browne and Mohan.

But Larry Ellison, CEO of Oracle thinks differently. "The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems," wrote he in a confidence building letter to all stake holders.

On the other hand, the acquisition can play a significant role in the open source scenario. There are two possibilities — One is that Oracle would continue to develop the ecosystem around MySQL in segments such as education, government as these segments are leaning towards Opex models. It will push the Oracle middle ware through LAMP to gain control of the market is a possibility. This logically dovetails its middleware strategy.

Secondly, it may offer hosted DB solutions to reach out price points closer to enterprise version of MySQL and in the long run subsume it. All the same, it is very unlikely that customers will shift to Postgrade, as most of the MySQL installations are developer license ones. Some enterprise License users of MySQL would explore hosted model of Microsoft SQL option.

Although, Oracle has an open source strategy, how well do the Sun products fit its bill? Fundamentally, Oracle is a software company that has looked at open source communities as extended source for innovation and product development. Sun has been a hardware focused company that always had a flawed software strategy and continued to subsidize (or completely ignore) the revenue possibilities from software. The engagement with communities and the institutional strategies adopted by each company in its engagement with OS community has been different. Sun was the Prophet of OS which never completely commercialized OS opportunities.  Java was an open standard not an OS license product.  With this acquisition Oracle can gain more traction in OS communities.

And despite these differences, there are synergies between the two companies. Said Mohan, Java + Solaris of SUN (great hardware and best known brands) and the DB and Middleware of Oracle would ensure "bundling" would become the predominant strategy in server markets.

Most customers in India like BFSI (HDFC, Vijaya Bank or Dena in India) are extensive users of both these technologies. Even in telecom space, BSNL, MTNL billing and other critical applications run using Oracle DB and Sun Sparc systems. Going forward the maintenance costs would reduce and also the cost of coordination for the CIO/CTO. Educational institutes and the government will be larger beneficiaries of this alliance.

This acquisition will also put IBM under increased pressure on server side and hence may have to realign its service revenues. For Microsoft, this would mean more vigorous push through hosted and other methods to retain its market share in server and DB business.