Market Update: Polycom Customizes System for Lync

Rob Enderle

IBM is rumored to be about to buy Sun for around $7 billion. Back when I worked at IBM, we had a running pool for anyone who was hired from Sun on how long they would last before they quit. The running average at that time was about nine months. Things have changed a lot since then -- for the better at IBM, not so much at Sun -- but the firms are still very different. The most similarity may be found on the software side, and it is here that the most value for this proposed merger will likely be found. The fact that IBM can even try to do this showcases how far the firm has come and how much more agile it is now.


For much of the late 80's and early 90's, Sun pounded on IBM, often making fun of the larger and then lumbering company. I'm sure, for some of the IBM old timers, the change in fortune that came with this decade favoring IBM is only topped by the possibility that someone from IBM can tell Scott McNealy, "You're fired." Back then, IBM buying Sun seemed impossible. My, how times have changed.


Sun and IBM on Similar Paths but Only One Executed


As I wrote earlier, IBM is a vastly changed company from the one we grew to know last century. Then, it was more like HP is today: mostly hardware with a large, though largely second class, software entity. By second class, I mean hardware ruled, and even though software generated vastly more profit for its revenue, in IBM it was a second-class citizen.


This decade, software is the power in IBM, and services, which was always one of IBM's greatest competitive advantages, remains one of IBM's strongest elements. IBM, as a result, is more like Microsoft + Services today than it is like HP. As a result, it seems nearly invulnerable to the current market conditions, standing almost alone, so far, in terms of being able to weather the current difficult financial storm.


For much of the 90s, Sun seemed to be in search of a strategy and could only focus on Microsoft (which wasn't even a primary competitor to the largely hardware-focused Sun). This century, it seemed to be investing in separating the company into software and hardware components. Unfortunately, while Jonathan Schwartz, Sun's CEO, was long on vision, he was short on execution. While Sam Palmisano was completing IBM's transition to a company focused on software and services, and Mark Hurd at HP was doubling down on hardware, Sun stalled and got caught in the middle. Getting caught in the middle clearly wasn't a good thing, and Sun has been on death watch for some time now. Several years back, I pointed out that Sun was positioning for acquisition. That day may have finally come.


Why Would IBM Want Sun?


The next big battle for IBM is "the cloud." The companies it will run hardest against aren't just HP and hardware vendors, but Microsoft, Cisco and possibly even Google. It needs Internet technology. Sun, with Java and related developers, has a key part of that. On the hardware side, there is undoubtedly some IP that IBM might like and that both the Server Unit and IBM Microelectronics could use, but I expect IBM would simply transition Sun's roadmap into IBM's very quickly.


The other key part is the Sun customer base which, because of Sun's hardware focus, is probably not generating very much at the moment (Sun is heavily used in the troubled financial industry), but this base is where IBM services and software could move more freely. While they may not be buying much hardware, they are looking for ways to dramatically cut costs, and IBM's software and service offerings are pointed tightly at this opportunity. More important, these remaining customers have shown themselves to be incredibly loyal. If IBM can embrace them, and IBM does this better than most, they will be just as golden for IBM as they have been for Sun. Loyal customers are the most valuable in any market and very hard to acquire, outside of buying the company to which they are loyal.

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