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This sort of activity is common in mergers and acquisitions. I wish I could say that I had experienced this only once, but the sad truth is I have been on the inside and watched this happen several times. And it always is the same. Something big happens, (e.g. a merger, an acquisition, a new “C”-Level Executive) and people leave. In my last corporate counsel position a new CEO was hired just two months after I had come onboard. The General Counsel who had hired me, an intelligent attorney with a superb management style, abruptly announced his untimely retirement just three months later. His replacement lasted a short 12 months. Within a year and a half the new CEO’s friend and confidant had assumed the General Counsel position and the department I had been a part of was completely eliminated.

So is it any surprise that Sun is experiencing a bit of a brain-drain after the acquisition by Oracle? Andy Patrizio reports for InternetNews in his article Defections Batter Sun Microsystems that some key Java-based developers are reading the writing on the wall and have decided to avoid the tap on the shoulder and request to come to some non-descript conference room. Patrizio reports that so far Java’s creator, James Gosling, has not jumped ship. Josh Farina, analyst with Technology Business Research, states:

"It'd be in their best interests to make offers to get people to stay on board … Oracle is really good at making companies run better, but ultimately it needs the talent to stay because … it's in the line employees who make it happen.”

And the affect is not solely on the software side of the business. To get a preview into this slippage in Sun’s sales see the posts in this Blog Oracle’s Purchase of Sun: A Game Changer and IBM and SAP vs. Oracle and Sun: Let the Speculation Begin. Scott Handy, vice president of marketing, strategy and sales support for IBM Power Systems, reports that customers are calling IBM requesting migration assistance. Sun’s customer base looked at Oracle’s track record and see price increases in the future. Handy states,

“They are all quite concerned. When Oracle bought Siebel and PeopleSoft, they increased the maintenance licenses by 25 percent per year. With BEA, licenses went up 45 percent. So they are looking at OPEX going up just to keep what they had".

IBM is geared up and ready for these migrations. In 2003 IBM acquired a company called Sector 7, a company specializing in migrations. IBM created a program entitled Migration Factory and to date have performed over 1800 migrations. Before the Sun acquisition the ratio was about 40% of the migrations were from Sun but now that percentage is starting to increase. For the first six months of this year IBM has migrated over 170 Sun customers and another 66 Sun storage customers. 

It appears that IBM is doing what it has always done and that is using their hardware to get business in the door and then turn that into sales for long-term services and software.

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In light of the recent mega-acquisition of Sun Microsystems by IT titan Oracle, the rumor mill has begun to turn. As a follow-on to my posting in this Blog last week dated May 11, 2009 entitled Oracle Purchase of Sun: “A Game Changer”, I have found two article’s that my readers may find of interest. Here is a brief synopsis of each:

An IBM marriage to SAP:

CNNMoney.com posted a Fortune Magazine article from their Tech Daily by senior writer Jon Fortt entitled IBM-SAP combo not in the cards – exec. In it CEO Sam Palmisano’s spokesman lays out why such an acquisition is unlikely. I cannot help my flair for the melodramatic and immediately what comes to mind is that old line from some film noir movie “Your lips say no, but your eyes says yes”. Some of the points for such a purchase are:

• IBM’s Websphere, DB2, and Cognos provide the foundation for SAP’s business apps.
• IBM is one of the few (Google and Microsoft notwithstanding) that could afford the $50 billion  SAP market value plus a premium.
• Such a combination could in essence provide all the software an enterprise could need.
• Others (e.g. Oracle / Sun) have embarked on this portfolio strategy.

IBM’s retort to the above is a recognition to tread softly as not to upset their existing partnership relations. I’m afraid I’m reminded of yet another famous line (with apologies to the Shakespearean aficionados – if I may be allowed a bit of poetic license) Methinks he doth protest too much. { The original line "The lady doth protest too much, methinks” is from Hamlet Act III Scene II. Queen Gertrude, not realizing that Hamlet has staged this play within a play to trap her and her husband whom Hamlet suspects of having murdered his father, speaks these famous words to her son, Prince Hamlet.  See answers at yahoo.com --- but I digress}

Oracle could play the old IBM trick: 

To continue on with the “speculation” theme of this posting, Rob Enderle examines  the aforementioned mega-acquisition and comes up with an interesting strategy in his article in InternetNews.com How Oracle-Sun Could Use Google to Become the New IBM. Apparently, back in the 60’s when IBM was king, IBM locked in its customer base by bundling software with the lease / purchase of its hardware. Enderle posits that Oracle stand this strategy on its head and proposes that Oracle bundle its software and services with the Sun Hardware and this time it is the hardware that is the free commodity (or close to it) and not the software as was the case for IBM in the 60’s. Enderle has an analysis on UNIX and Linux and how Java is “a bone fide platform in its own right”, but I will have to leave it to you to grasp the nuance, since I cannot. The missing element to this strategy is the desktop component. Enderle closes the loop in this strategy with an Oracle – Google alliance (if this is possible) and has Oracle emerge as the new IBM. Such an alliance seems improbable, but worth the mention.

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In late April 2009 Oracle announced its $7.4 Billion purchase of Sun Microsystems. As you can imagine, this deal will have a significant impact on the IT industry, but just how much of an impact remains to be seen. Invariably acquisitions of this size and nature will be examined for any possible anti-trust issues such as anti-competitive influences on the market-place. This process by regulators will be done here and abroad and the end-result may be the necessity to sell-off some assets of the newly combined business. If you are looking for an excellent in-depth analysis of this deal I highly recommend Bruce Guptill’s article in SandHill.com The Impact of Oracle – Sun. In it Guptill sees a totally changed IT Industry with Oracle emerging as a “portfolio” company with the following abilities and offerings:

·         Hardware

·         OS

·         Middleware

·         Applications

·         Development tools

·         Databases

·         Production environments for Hosting

·         SaaS

·         On-premise subscription services; and

·         Consulting solutions (vertical and horizontal).

Although Sun is primarily a hardware vendor, Guptill sees this as a play for Sun’s software capability. He quotes Oracle’s CEO, Larry Ellison, “Sun's Java programming language and Solaris operating system were the main attractions for Oracle”; and specifically as regards Java, “the single most important software asset we have ever acquired.”  Guptill believes this asset alone places Oracle at the epicenter of the industry. Sun has also played a key role in open source by opening Java and Solaris to developers and this should give Oracle the ability to influence such software development especially in the following specific vertical markets: financial services, government, academia, and high-performance computing. Lest we forget the hardware business, Sun’s server and storage revenue have been estimated at an annual amount of $7 billion and $9 billion respectively. All of the Sun components, from software to hardware, should provide Oracle the foundation to build its SaaS and Cloud Computing services.

Can Oracle successfully integrate the services and hardware businesses that come with the purchase of Sun? Guptill tells us to be on the lookout for Oracle Management to sell of some of these hardware lines, or alternatively as mentioned above, regulators may force Oracle to divest itself of some of these assets.

Guptill concludes his article with a brief description of the impact such a purchase has on several stakeholders and competitors. For example:

For Sun: This probably means the demise of Sun CEO Jonathan Schwartz who had pushed for the IBM acquisition of Sun rather than Oracle. Sun Chairman, Scott McNealy, although a friend of Larry Ellison, will probably go as well since a ship needs only one captain.

For MySQL: It should fit nicely into the Oracle family as a web server database engine.

For IBM: This was a lost opportunity at more profits and the ability to rein in Oracle competition. Also Sun’s capabilities would have enhanced IBM’s Cloud Computing efforts, but now this advantage goes to Oracle.

For SAP: Guptill sees the advantage going to SAP in the interim while Oracle’s sales teams learn how to integrate Sun products into the Oracle family. I am not so sure I agree. In light of SAP’s recent sales history any advantage may be illusory. See SandHill.com Software News Summary article SAP Struggles. The title tells it all.

For Hardware Vendors: For those that have partnered with Oracle in the past the loss could be significant.

For Users: Future investments in Sun hardware may be put on hold as the install base waits for reassurances on the direction of the server and storage lines of business.

Never a dull moment.

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