Oracle's Sun Buy: Eclipsing the Competition?
As a mammoth union changes the technology landscape, a few things to watch forBy embracing Sun, Oracle gains huge heft and extends its shadow to cover a wider swathe of the technology industry. The two companies clearly have significant synergies. But where do these synergies lie, and how will Oracle capitalize on them? Here's an analysis of a few elements of Oracle's strategy, and some implications for the industry, that any observer of the technology industry should track over the next year or two.
Oracle's Server StrategyThe buy gives Oracle an entree into the server business, a space where it lacks a footprint. However the server business has been getting increasingly commoditized, and this trend will accelerate as Cloud Computing gains traction. This is because Cloud Computing (CC) is inherently a large-scale operation, and CC service providers tend to be behemoths that buy up servers on a humongous scale. Oracle's server business will thus see its customers' bargaining power grow, and watch its margins being squeezed. These dropping margins and Oracle’s inexperience in the hardware business have prompted several observers to speculate that Oracle will jettison Sun’s server business. However Oracle is unlikely to do any such thing. In fact, this is where Oracle can exploit one synergy : its flagship product, the Oracle database has for long been tightly integrated with Sun's Solaris, which Larry Ellison calls "the heart of Sun's business". Oracle will need an astute bundling of servers, OS (Solaris), database and Apps to pull back margins somewhat in the non-CC market.
Oracle's Cloud Computing strategy
Oracle may also perhaps become a Cloud Computing provider itself, although there is no indication of such a move yet. Sun has a fledgling CC service called Sun Cloud (a title that appears oxymoronic until you realize that Sun, with characteristic flair, has given it the ingenious tag line, "Behind every cloud, you'll see the Sun" !! ). Oracle may choose to develop this service, but will have to reckon with the formidable Google, Amazon, IBM and Microsoft which are already striding this space. If it does decide to throw its hat into the CC ring with Sun Cloud, Oracle may have an advantage in that Sun Cloud is touted as being much more open than rival CC services. This will help assuage the concerns that many prospective CC customers have, of being locked-in by CC vendors. However this openness may sit uncomfortably with Oracle, which has neither shown much predilection nor strategic commitment towards openness thus far.
Ironically, buying Sun may be sending Oracle deeper into the clouds. But a strong foray into Cloud Computing may be what it takes to put the competition in the shadow.
Oracle's strategy for MySQL
This is perhaps the most closely watched aspect of the union, and there is considerable trepidation that Oracle will "kill" MySQL, Sun's database asset. However, Oracle is hardly likely to waste the considerable brand equity and installation base that MySQL enjoys. It is far more likely to position MySQL as an entry-level option for SMBs. However, there is a wild card here: The deal may come under Antitrust scrutiny, as regulators may not relish the idea of MySQL falling into the hands of a company that is already sells the industry-leading database. And if antitrust regulators do force Oracle to jettison MySQL, IBM is a likely contender to snap up the database. If it is indeed true, as the more conspiratorially-inclined believe, that keeping MySQL out of IBM’s hands was a major driver for Oracle’s Sun buy, then Oracle may be achieving just the opposite.
Oracle's Java strategy
Larry Ellison calls Java "the single most important software asset we have ever acquired." Nevertheless, Java has effectively been open-sourced, so Oracle will not "control" it in the conventional sense. However Java has been a backbone of Oracle’s product strategy and even if Oracle is unable to exercise significant control over the broader Java platform, it should still be able to draw considerable benefits from the synergies that its products enjoy with Java. How powerful competitors including IBM and SAP – which themselves have considerable commitment to Java - will respond to Oracle's stewardship of the Java platform also remains to be seen.
Oracle's services strategyFor its part, Oracle has touted reduced integration costs as a key customer benefit arising from the Sun acquisition. However Oracle still lags in integration services provision capability. And it may well train its by-now redoubtable acquisitive might towards buying a company that will help bridge this yawning gap in its footprint.
Towards further industry consolidation?
The Oracle acquisition juggernaut is hardly done. As noted above, Oracle is certainly motivated to acquire further, with a view to strengthening it's service provision capability. Another logical fallout is that this will force IBM to look at the enterprise applications space for acquisitions, in a move to counter Oracle’s growing might. So, this is an intriguing – but certainly not the last – move in the technology industry’s continuing march towards further consolidation.