Oracle/Sun: Vastly Changing the Hardware, Software, Services Landscape


Unbreakable Linux, which initially showed some promise, turned out to be an inside industry joke with Oracle at the butt of it. It just didn't seem to get much traction and the connection to Red Hat, instead of giving it a strong bounce, actually seemed to work against the product. With Sun, Oracle gets additional tools to remake itself into a platform player but also gets a hardware card it could use to raise a hardware vendor either to greater prominence or assured dominance. Let's chat about both.


Unbreakable Linux: Joke to Major Player


Oracle, at least for most of this decade, has performed nearly flawlessly. A company to be reckoned with, it has mowed down or rolled over most of its competitors. IBM and Microsoft are the two exceptions, but even these giants had difficulty competing with Oracle. However, when Oracle created Unbreakable Linux and ran against much smaller Red Hat and Novell, it got handed its hat and became kind of a running joke here in Silicon Valley.


With Sun, that joke gets a lot less funny. Sun still has a substantial installed base of customers who have not been able to move off Solaris to Linux and weren't particularly motivated to move. Granted, they also weren't particularly motivated to buy more, which is why Sun was in the financial trouble that forced it to look for a buyer. In addition, Oracle knows how to do mergers like this. Even the hostile PeopleSoft acquisition had it keeping more PeopleSoft customers than most thought was possible. Given that there is a substantial amount of client overlap between Oracle and Sun, keeping the Sun clients happy should be an easier task. This suggests that Oracle will position Unbreakable Linux as the upgrade to Solaris and, if it executes as well as it did with PeopleSoft, it should end up with a substantial bump in market share for its Linux platform. Enough anyway so that it becomes a real player, and that should allow others to take the platform more seriously.


Finally, it is believed that a substantial amount of code in Linux actually may belong to Sun and, with this acquisition, could belong to Oracle. While I don't expect a SCO moment, I would expect Oracle to use it as a bargaining chip to drive Linux in a direction it felt benefitted the firm. It may be the only company on the planet that might know how to do this without it blowing up in their face. This might make Oracle a leader among equals, and if it played with HP (see below), a real risk to the other enterprise distribution owners and IBM. Coupled with Java, which is both a valid platform in its own right and vastly more strategic to Oracle than it was to Sun, Oracle becomes a real platform company and better able to match both IBM and Microsoft going forward.


Hardware Kingmaker


Sun's hardware revenue has been falling off a cliff, but it retains a substantial share of the installed base for workstations and servers. It is doubtful that Oracle will stay in the hardware business because, by doing so, it would create a substantial competitive benefit for its hardware-independent competitors. Selling it out for cash and a closer partnership could change the hardware landscape significantly. Likely partners would be, in order of interest, Lenovo, Dell and HP. Each would get a slightly different benefit.


For Lenovo, it would instantly give the company server credibility and more direct access to companies that buy a variety of PC products. These Sun accounts probably do overlap somewhat with the IBM accounts that founded Lenovo but server relationships, particularly at the high end, tend to be much more stable than PC relationships because of the related scale and hardware life cycles. It's very costly to migrate. Were Lenovo able to stabilize and, with Oracle's help, protect the Sun installed base, it would exit the process as a major server player and a complete IT hardware portfolio supplier. If Lenovo were able to hang on through the transition, it would be in a vastly better competitive position across its account base than it is today. If it retained some of Sun's hardware resources, it would appear more international than Chinese, which would help it significantly outside and inside of China.

For Dell, this would finally give it a high-end solution and possibly a favored position with Oracle over HP. Dell has probably been one of the beneficiaries of Sun's slide, Getting the Sun installed base would allow it to wrap these customers first with Dell service, enhanced by Sun's own services group, and its vastly stronger (than Sun) X86 portfolio. In both cases, this would strengthen Dell significantly against both IBM and HP and make it the company to displace in a market tightly focused on cost, which is a market Dell was made to play in. The tighter relationship with Oracle gives it a better bargaining tool with Microsoft and further increases its stature when bidding against HP and IBM. Finally, this could do more to change the perception of Dell as a PC company to more of an HP- and IBM-like full service company than most anything else it is likely capable of doing this decade.


For HP, this would be a massive move against IBM on three vectors. First, it would give the company enough additional market share to distance itself from IBM and become the undisputed market share leader in servers, at least initially. Oracle would feel the most comfortable with HP, and HP would be more comfortable with Oracle than it is with Microsoft. Here, the end result could be a massive push not only for HP Services, but Unbreakable Linux, and HP hardware. Done right, this would be the outcome that would hurt IBM the most and create the strongest opportunity for Oracle to actually own enterprise Linux as a platform. Both of these companies have substantial enterprise reach and executives that are in relatively close proximity and share similar backgrounds. In other words, this could become one of the biggest partnerships in the history of technology, were it to reach potential.


Wrapping Up: Bigger Than IBM


While the Sun/IBM deal was interesting and would have helped IBM software substantially, it wasn't that beneficial to IBM hardware and outside of IBM, wouldn't have had that much impact except on HP.


This Oracle deal is vastly more disruptive. Coupled with Oracle's demonstrated expertise in mergers and in making deals, it could actually change the power dynamics in the Linux, high-end server and workstation markets. It will be harder to do right because several players are needed to optimize the result and the timing isn't great for any of the hardware vendors that would need to buy into this effort. It is interesting to note that, with regard to assets, Sun is probably worth more to Oracle than to IBM because it gives the company a position on development platforms. However, for IBM, part of the value would be to deny competitors access to the Sun assets and that cost to IBM may turn out to exceed the asset value, suggesting that IBM may have substantially under bid. That, of course assumes this works out, but given Oracle's success with ventures like this, it wouldn't seem prudent to bet against it.