Summary
1. Oracle now makes the technology industry a three-horse race between itself, IBM, and HP 2. This move will drive additional consolidation in the industry as HP and IBM will step up acquisitions 3. Oracle will likely emerge as the leader in cloud technology 4. Pressure will be placed on Microsoft for the corporate operating system space 5. Oracle may have trouble executing on the go-to-market, leading to a talent acquisition binge 6. In order to fully leverage the Sun acquisition, Oracle will have to increase its Professional Services portfolio
Analysis
Oracle's acquisition of Sun redefines the technology landscape. Unlike its ill-fated Network Appliance gambit a decade ago, the Sun acquisition enables Oracle to finally up the ante against IBM and HP by becoming a hardware vendor, an operating system supplier, and assumes control Java.
Although Oracle gets a bigger share of the database market with MySQL, in all likelihood Oracle will de-emphasize MySQL as an open source alternative to its own offerings, gradually migrating MySQL users to a new array of lower-end products.
The market’s competitive dynamics have now dramatically shifted. HP has recently supplanted Dell in the desktop and mid-range server arena, placing it firmly in the #2 spot behind IBM. With the combination of Sun and Oracle, HP is now challenged and the industry is narrowed to three technology mega-players: IBM, HP, and Oracle.
HP will likely feel enormous pressure because of its reliance on Oracle’s database to drive hardware penetration. To protect itself, HP will be forced to move more aggressively into acquiring additional components to its technology stack, and IBM will follow suit.
Oracle is now positioned to bring its customers end-to-end integrated business and technology solutions in a much more sophisticated and comprehensive fashion, enabling better cross-sell/upsell opportunities and crowding out HP, IBM, and potentially even Microsoft for the operating system. As Oracle stated in its announcement conference call they now can offer customers hardware, packaged applications, operating systems, middleware, storage, database, etc. This will certainly challenge IBM in all but the must massive mainframe environments.
Oracle will likely take a lead position in cloud computing. While Sun had put together a strong portfolio of cloud computing/virtualization technologies over the last five years, its capabilities were completely overshadowed by rumors of impending acquisition talks.
What will Oracle do with Java, MySQL, and Sun’s vast open source portfolio? The central question is how to monetize these technologies, or at least leverage them for customer penetration as a channel to wallet-share opportunities. For all his talk of Open Source, Ellison is at heart a capitalist and will look to find ways to create profit opportunities.
Solaris is suddenly cool again. During the last year, both IBM and HP announced support for Solaris, and with Oracle’s acquisition a very interesting ballet will unfold in the operating system space. Not since OS/2 has there been a serious threat to the corporate desktop and with Sun Oracle now has an opportunity to intensify its rivalry with Microsoft. As it battles a two-front was against Apple on the desktop and Oracle/HP/IBM in the enterprise, look for potentially interesting acquisition activity by Microsoft.
Mergers of this nature put tremendous challenges on market execution. The elephant in the room is how to marry the significantly diverse cultures of Sun and Oracle. There is a high likelihood that initial attempts to leverage internal talent will fail, leading to a talent acquisition binge by Oracle, and likely targeting both HP and IBM. Few companies have the breadth of experience to operate successfully across the enterprise, and Oracle may feel compelled to hand-pick key leaders to join the company, probably in the areas of customer management and services. Oracle simply has no talent or cultural expertise in guiding customers across the full software/hardware solutions arena, and Sun’s capabilities are more focused on the IT world than on the business solution world.
This talent shortfall is also particularly acute in the systems integration arena. IBM’s acquisition of PricewaterhouseCooper and HP’s acquisition of EDS provide excellent blueprints for where Oracle will make its next strong move – the services business. Historically, Oracle’s professional services organization has been problematic and the complexities presented by the Sun acquisition compound this issue. While CSC is an obvious target, Oracle may also look to larger, more global players like Cap Gemini/EY or even to smaller regional SIs to round out its capabilities.
