As I came off a weeks vacation Monday I was greeted by a 5AM call from Oracle informing me that they were announcing Oracle’s intent to acquire Sun Microsystems for $9.50 per share. The deal comes at a time when IBM, who had been in negotiations with Sun for several months, had withdrawn its offer citing the belief that the price tag was too rich. In typical Silicon Valley style it seems clear now that the long standing relationship between Oracle CEO and Co-founder Larry Ellison and Sun founder and Chairman Scott McNealy played a big part in the ability of the two companies to pull off this deal in a very short time, a bold move that strengthens Oracle’s position against both IBM and Microsoft. The deal is interesting from several different angles and provides some unique opportunities for the Oracle / Sun customer base.
In a conversation with Oracle Co-President Charles Phillips Monday morning I was able to get some insight to the motivation behind the acquisition and the early take on a go forward strategy. When asked about the key drivers from Oracle’s perspective Charles listed three elements as core: 1. Java, 2. Solaris and 3. storage. Clearly Oracle views Java as a critical part of its open strategy, with its fast growth Fusion Middleware business reliant on Java as its foundation. In the announcement call Larry Ellison called the acquisition of Java the single most important software purchase they have made (quite a statement from a company that has acquired 60 companies in 5 years). Solaris is important to Oracle as it is the most often deployed operating system with Oracle software. The last driver, storage, was not one I would have initially listed but as I reflect on what Charles said I realize that in fact an Oracle play in storage could be a very strong growth business opportunity.
Sun of course is a mixed bag from open source software to hardware. Oracle stated that with the operational efficiencies of a merged company it can take a recently unprofitable Sun and drive healthy profits (Oracle Co-President Safra Katz stated $1.5B in profits, a very healthy number). Can they do it? Again this is #60 on their acquisition list so this is not new. What is new of course is the hardware piece of the business, a departure from previous statements from Oracle that they had no interest in getting into the hardware business (I suppose that ended last year at Oracle OpenWorld with the announcement of the Exadata Database Machine, co produced with HP). Sun’s expertise in hardware is in design with all their manufacturing outsourced. This model could fit nicely into Oracle and lead to a series of “appliance” products that bundle database, OS, apps and hardware into a vertical or market segment focused solution that is pre-integrated and operationally compatible. Oracle was already testing this “appliance” idea in a few test verticals so this is a natural next step.
The one area that seems to be getting the most buzz in the Twittersphere and blogsphere is the open source question. There is, IMHO, a misconception that Oracle will kill off part of Sun’s open source software portfolio, specifically MySQL. I asked Charles and a few other executives the direct question about MySQL and in every case have received the same answer, MySQL will be continued post-acquisition. While some analyst have posited that Oracle is threatened by MySQL, it seems more likely that the plan will be to continue to target areas in the market where MySQL is a good fit over Oracle’s database products (small and medium business for example) and also use MySQL as a component in some of the appliance offerings. Oracle is not new to open source software with projects like InnoDB, Unbreakable Linux, Berkley DB, etc. and with the addition of Sun’s portfolio of OSS Oracle is arguably the world’s largest OSS vendor. In the past Sun had been criticized for it’s management of some of its OSS portfolio by not encouraging openness and true OSS communities, it will be interesting to see if Oracle can improve the transparency and openness and foster stronger communities for the Sun portfolio going forward.
There are still a lot of unanswered questions, which is normal in the early days of acquisition announcements. The Oracle team will continue its due diligence over the next few months as the deal moves forward and over time make known their full plans for integrating the Sun business. If nothing else you have to applaud Oracle’s boldness as they, in true Sun Tzu Art of War fashion, once again snatch the prize out of the grasp of their competition.
