Oracle-Sun Update: Why IBM May Have a Reason to Celebrate


Oracle is an expert at acquisitions. Few do it better, but with Sun, it got a bunch of unique problems (including a processor that no one seemed to want), and they seem to be bleeding the value out of the company before Oracle can take control. Anecdotally, IBM, which had originally been trying to make the purchase, seems to be the biggest beneficiary of Sun's customer attrition, suggesting that it may be getting much of the initial benefit without incurring massive cost and risk of making the acquisition.


Oracle Initially Dims Sun


For much of this decade, Sun has been in distress. For even longer, it has moved from strategy to strategy, leaving Sun customers dazed, confused, and vulnerable to competitive acquisition. The Oracle move took these remaining stunned customers and gave them several reasons for additional concern. Oracle, while well run, is also not particularly well liked because of its aggressive control and pricing practices. It makes a good product, but its efforts to increase revenue out of an account once it has it often seem very difficult to avoid and are the source of consternation for a large section of its customer base. It is often perceived as a company that comes in, takes over, and becomes very difficult to say no to. As a result, giving more control to Oracle, particularly with regard to hardware, is a frightening concept for many of the remaining Sun accounts. In addition, Oracle is not expected to actually keep the hardware indefinitely which, even if Oracle isn't the perceived problem, raises the specter of risk in a market and segment doing everything it can do to avoid that.


We shouldn't leave out Sun employee attrition as another major problem. Currently, the Silicon Valley is awash with Sun employees looking for jobs. Sun has been dropping employees regularly for awhile and I'd argue that the firm probably didn't have enough folks left to actually operate it successfully, given how deep the cuts have been. With additional bleeding, offset somewhat by an ugly job market, relationships are breaking, and even where they aren't, people in Sun are asking their customers about job opportunities as they seek to leave before the next anticipated post-merger layoff wave hits.


Finally, due to the arm's length nature of an acquisition that hasn't closed yet, Oracle can do relatively little to address these concerns -- whether or not they are real. In short, Oracle's skills and capabilities mostly aren't available to address these issues until the deal closes.


IBM Making Sun Sushi


IBM seems to be capturing much of this business. Granted, this is largely anecdotal at the moment, but there seem to be several reasons for this. First, IBM remains one of the most trusted brands in the segment. If you've lost trust in a vendor, it would seem natural to seek out another that is believed to be more stable. This perception of stability is enhanced by IBM's attempt to buy Sun in the first place. In addition, IBM was the primary target of Sun for much of the 90s, but many of the mainframes and midrange computers remained in place and were still serviced by IBM which, once again, appeared very stable compared to Sun in these accounts. This gave IBM a foot in the door and the IBM sales teams appear to be well positioned to take advantage of the existing relationships and move on this opportunity.


Finally, while I don't have details, it appears that IBM rolled some aggressive sales programs quickly that specifically targeted the concerns of these Sun accounts. All of this together is what appears to have given IBM an initial advantage in terms of migrating the business from Sun to IBM and makes it look like it may benefit significantly from the result.


Wrapping Up: A Dish Better Served Cold


It is somewhat ironic, given how much Sun pounded on IBM in the 90s and stole business from the firm when it was recovering from its own financial and operational missteps, that this Sun strategy is now working against what is left of Sun. There is an old saying about being careful who you kick on the way up because they'll be around to kick you on the way down. In this case, that this saying may be true.