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Oracle's Sun Buy: Eclipsing the Competition?

As a mammoth union changes the technology landscape, a few things to watch for

By 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 Strategy

The 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 strategy

For 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.

Comments

Hi Dr.Vivek,

Nice article.

In my view,

This acquisition draws the battle lines, it will be IBM against Oracle & HP and both now at equal punching weight.

Beginning of the End for Solaris & Sun Servers
Sun is walking away, as it realised it will be matter of time before it can't sell the expensive Solaris boxes profitably. Oracle walked away from Sun four years back, now then why do they want Sun now?

As you have pointed out; Databases, the bread and butter of Oracle has a tight affinity for Solaris and for this very reason Oracle may want Solaris to be alive for some more years and can't let it fall into IBM hands.

Solaris has a big presence in the financial industry, thanks to the global recession these costly machines will be replaced by Linux servers. Once the big chunk of clients start moving from Sun Servers, Solaris will be of no use to Oracle, the software company, it would have either to be sold or licensed off to a smaller niche hardware company.

Known to monetise their assets well, Oracle will start this shortly, as 2/3 years down the line Solaris will be of no value to any hardware provider and Oracle left holding the piece.


Oracle will not do commoditised cloud, but will use Sun's cloud investment differently
Oracle will not do the commoditised cloud and Larry Ellison doesn't believe in the cloud. Though they could come up with focused service platforms that will produce revenues from both the corporate and retail sectors, thus diversifying the revenue stream. This gap cloud will be filled up by buying up a Data center service provider or bringing Cisco to the HP - Oracle alliance

This is another reason I think the hardware and Solaris will be sold away from Oracle possible under a license.

AntiTrust eye on MySQL is baked in the cake
Oracle would have clearly seen there will some level of action by anti-trust regulators as far as MySQL is concerned. Even if this gets snapped by IBM, Oracle won't be bothered. It would have salvaged some dollars it paid for Sun. As it stands MySQL will not trouble Oracle anytime soon.

If it gets away with it, brand it as a pony for a course.

It's all about Java
Oracle paid 7 billion USD with 2.5 billion USD, if other pieces are values for another 1.5 billion USD, cost of buying JAVA would be 3 Billion USD. I am excited to see how Oracle will monetise this either stand alone or synergised with Oracle suite of software products

I agree with you, this will push IBM towards more enterprise application space acquisition and the industry towards consolidation

Thanks Vallinayagam for your detailed views. If it is true that Oracle will "sunset" Solaris soon, that will be a pity indeed. Solaris is among the most robust and capable OSs.

Also Oracle may be well advised not to be complacent about MySQL entering the IBM fold. Although MySQL is small and hardly a threat to the mighty Oracle RDBMS now, it may follow the classic route (as posited by Prof. Clayton Christensen's theories of disruption) and emerge as a disruptor to Oracle's database.

Consolidation is inevitable. There will be hardly anybody in the middle ground. We have already seen it happen to a greater extent in software than services, but IT services is going that route.

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