High on Compatibility

Just a few days back Dataquest described the Tech Mahindras acquisition of

Satyam as the bridesmaid walking away with the groom even as the anointed bride,

L&T Infotech, was left looking silly at the altar. Little did we know at that

time the same drama would be repeated in few days on a much wider global radar.

The Oracle-Sun deal came little more than two weeks after IBM had stalled its

talks with Sun.

Oracle, which has spent more than $30 bn buying software rivals in recent

years, swung into action on Thursday after talks between IBM and Sun had

stalled, analysts and investors following the agreement said. IBM still held out

hope over the weekend that Sun would accept a bid from the big computer maker,

but Suns board voted in favor of Oracles offer, which was viewed as less

likely to face an antitrust challenge since there was little business overlap.

The jilted suitor IBM is highly unlikely to re-enter the bidding for Sun.

But does this now mean that the two will live happily ever after? Will it

have a strong enough potency to ward off the challenges from the spurned suitor

IBM or the likes of HP and Dell who too now have similar portfolio? The answer

lies in what exactly is the dowry that Sun brings and how Oracle would be able

to leverage that to its advantage against its competitors in the near future.

Assets that Turned on Oracle



Oracles maverick CEO Larry Ellison agreed in the conference call to

announce the deal that Suns Java programming language and its Solaris operating

system were the main attractions that turned Oracle on. Ellison described Java,

the preferred programming language of developers worldwide, as the single most

important software asset we have ever acquired. Ellison is in fact willing to

make this bold statement even after spending in excess of $40 bn to buy more

than fifty software companies since 2005.

And considering that some of these acquisitions included Peoplesoft, Siebel,

BEA Systems and the likes, it does mean the tremendous importance Oracle is

placing on Java. This is precisely because the Java programming language, widely

used to write much of the worlds business software, is a key ingredient in

Oracles recipe for ensuring the many products it has already acquired work

smoothly together. Java also runs on 800 mn PCs and 2.1 bn mobile phones. PC

makers and cell-phone vendors, including Nokia pay royalties to license the

software.

Yet Java supplied just $220 mn of Suns $13.9 bn in the 2008 revenue. But

several analysts emphasize that Javas real value lies in its brand recall and

therein lies its true potential. Java is the most valuable brand in software

that has no value, argues Maneka Arora, an independent Java programmer in San

Francisco. While Sun has till date not been able to financially exploit Java

(either out of design or more a lack of marketing acumen), Oracle does have the

wherewithal and means to monetize it to the optimum. This could soon be a

billion-dollar business, predicts Malobika Chakraborty, a Pennsylvania-based

software analyst.

Java could be a trump card for Ellison in the long run, especially with

Oracle throwing its large and effective sales force at Java. This is

particularly important now as contracts with Nokia and other handset vendors are

coming due for renewal, says one ex-Oracle employee on conditions of anonymity.

Java is also key to Oracles middleware stack called Fusion designed to

stitch together the array of programs Oracle has scooped up through its

acquisition binge. Controlling the software in house could help Oracle assure

customers of a smooth transition from older products to new ones. And owning

Java gives Oracle a counterweight to Microsoft as it tries to convince more

developers to incorporate its database, middleware, and other software into

their products, argues Malobika.

Oracle is expected to generate more than half of its estimated $23.1 bn in

2009 sales from technical support and maintenance of products its customers

have already licensed. Those support contracts carry profit margins of about

90%. Controlling Java is all about future maintenance streams as it will create

stickier lock-in for the Oracle installed base.

Incidentally, IBM also relies heavily on Java. While Oracle could use the

acquisition to make it harder for Big Blue to develop software using Java, some

analysts in their blogs point out that Oracle would be better served using Java

as a bulwark against Microsoft, whose .NET technology competes with Java. Both

IBM and Oracle need, more than anything else, a healthy Java market, believes

Maneka. Now that IBM has taken a pass, Javas fate lies largely in Oracles

hands.

Solaris was Suns second biggest attraction for Oracle after Java. Oracle now

wants to sell Suns Solaris operating system and servers in tandem with its

RDBMS. In fact, Java and Solaris have been the twin assets Sun has been

flaunting for a long time. Now that the assets have paid off in luring Oracle to

its bosom, whether they would also help Oracle expand in the future is the moot

question.

Will Hardware Kill the Excitement



With Sun, Oracle will more directly compete against IBM, HP and other giants

selling products and services used in corporate data centers by big

corporations. The move by Oracle is part of the trend of the largest technology

companies to assemble more offeringshardware, software and servicesfor

corporate customers, often through acquisitions. The Oracle-Sun deal, analysts

believe, has the potential to revitalize a systems competitor that IBM and HP

were writing off as dead.

The combined company, according to Oracle and Sun executives, will be able

tweak and integrate its software to reduce costs and bugs, and to tighten

security. Suns computer designers, they said, can tailor hardware to the

combined companys software, promising further gains in efficiency. Executives

from the two companies like Safra Catz, Oracle president, pointed repeatedly to

the benefits of this systems approach, combining software and hardware.

Many still feel that Oracle may eventually choose to divest Suns hardware

business. Especially since it is something that Oracle has little experience

running and Suns server business has been losing money. Oracles 46% operating

profit margins, among the industrys highest, will no doubt be squeezed by the

addition of Suns server business. There are far more challenges here than

opportunities, argued some Wall Street and industry analysts and therefore

suggested Oracle sell Suns hardware business to help pay for the software with

more long-term value.

Safra however asserts Oracle has no plans to wash off, rather it intends to

make Suns hardware operations a profitable business unit.

Newer Postures



There is another question mark on the future of the open source movement

post Oracles acquisition of Sun. While Sun has been gradually gravitating

towards the open firmament towards the last few years, Oracle might not want to

keep the liasion so open in the near future. Open source in general is likely to

take a hit as Linux is unlikely to remain Oracles focal point on the operating

system radar. Solaris will be the prime Oracle OS for performance, meaning

Oracles channel pipeline to Red Hat will also shrink. And MySQL will be a means

and not an ends for Oracle, which would, of course, prefer an Oracle 11g cloud

instead.

Oracle though is likely to keep Java open. The BEA WebLogic implementations

now at Oracle is likely to gather some minor bundles from Suns software

portfolio. There will be further tussle for influence between Oracle and IBM in

Eclipse and the Java Community Process (JCP).

On the other hand, Oracle would become a force to reckon with in cloud

computing now, thanks to Sun. That would pit it favorably against the SaaS

initiatives of SAP or Microsoft as well as platform as service initiative of

Amazon. And maybe, a stronger competition to Salesforce.com. Oracle doesnt need

to buy Sales force for the time being, though you never know with Ellisons

predatory eyes checking out all potential technology damsels moving around.

Rajneesh De



rajneeshd@cybermedia.co.in