Sun Under Oracle's Umbrella

The news of Oracle's acquisition of Sun Microsystems at $7.4billion, which
was announced one fine morning, has since become the talking point across the
software industry the world over. The announcement, made on April 20, has got
global industry experts and research analysts analyzing and re-analyzing the
mega deal, its consequences, possibilities and non-possibilities on the software
arena.

It is reported that Oracle purchased Sun Microsystems at $9.50 per share.
Now, experts are of the opinion that as the strategies of Oracle are rolled out,
regarding the business deal, the picture would become more clear with respect to
the needs of Sun and the business options they were looking for with this deal.

The marriage will provide a platform for Oracle to converge as a hardware and
software company, thereby giving competition to players like IBM and HP, who
currently dominate the market as complete IT service providers. The deal would
provide a dais for Oracle as a software-cum-hardware provider bringing an
operating system, database and ERP software to its portfolio.

In a press release, Larry Ellison, CEO, Oracle remarked, “The acquisition of
Sun transforms the IT industry, combining best-in-class enterprise software and
mission-critical computing systems. Oracle will be the only company that can
engineer an integrated system-applications to disk-where all the pieces fit and
work together so customers do not have to do it themselves. Our customers
benefit as their systems integration costs go down while system performance,
reliability and security go up.”

Interestingly, just two weeks before the announcement, IBM was negotiating to
buy Sun at $9.40 per share. However with Sun not very impressed with the price
that was being offered, the deal was finally dropped. It came as a surprise for
the industry when Oracle purchased the company by paying 10 cents per share
higher than IBM.

Also, software experts have opined that the deal would act as a lifeline for
Sun as the company had not been meeting the needs of new commodities and open
source-based solutions for its customers.

With the global market abuzz with the news, the Indian sub-continent has also
not been left untouched by the deal. Besides the industry it is likely to create
an impact on the solution providers of Oracle and Sun Microsystems.

Channel reactions

The announcement of the Oracle-Sun deal has been creating ripples in the
Indian industry and the solution provider community as well. According to
Forrester estimates, the market size of IT products and services in India is $34
billion and the acquisition would help Oracle to address newer segments by
increasing the share of the overall enterprise software services market.

When inquired with the solution providers about their opinion of the deal,
they shared that Oracle needs to design new strategies to sell hardware business
also along with the operating system of Sun.

Having merged with Sun, Oracle partners will now avail a combination of
hardware as well as software business that will give rise to intense competition
with IBM's solution providers.

Though SPs accorded that it was too early to comment on the impact of the
deal on their business they agreed that the acquisition would put the Oracle and
Sun partners ahead of their competitors.

Commenting on the matter, Sanjiv Bhavnani of New Delhi-based Vishesh
Infotecnics said that it was too early to comment on the matter and until the
strategies of Oracle are put into place solution providers would just have to
wait and watch.

He added, “However, the solution providers of Oracle and Sun will benefit
from this deal as they would enjoy a better market position in comparison to IBM
therefore they should be excited about the announcement.”

Sudhir Kothari of Kolkata-based Embee Software also felt that at this stage
it was too early to comment on the impact of the deal on Indian market.
“However, this deal will certainly have an impact on the business of IBM
partners and the competition would become intense as IBM is in the same domain.
Sun would now target to increase the market place as Oracle is also in database
and application business zone,” said Kothari.

On the difference in pricing due to the acquisition, Kothari stated that he
was not anticipating much difference in the pricing of the products, however,
the deal would certainly help the direct partners of Sun and Oracle as they can
now bundle the hardware and application, and this would increase their
marketshare.

“The deal is anytime advantageous for solution providers who are directly
engaged with Sun Microsystems and Oracle, and they should be excited about the
deal as they will get better product packages to offer to their customers. SPs
who were just selling Oracle and were independent of hardware will now be able
to sell a packaged solution,” Kothari added.

Edward Jeevan of Bengaluru-based Binary Systems opined, “Definitely, there
will be good competition in the market but I don't think that there will be any
difference in the pricing of the products. It would lead to stiff competition
and the SPs will provide solutions that are better packaged and will give value
to the customers.”

The deal would be beneficial for the direct partners of Sun and Oracle as
they would be able to bundle better products to the customers in one package.

Ranjan Chopra of New Delhi-based Team Computer opined that the deal between
Sun and Oracle would not be very good for products like Java and Open Source as
the focus on these software may lose its grip. There may not be much impact on
the solution providers at SMB level but it would affect the partners at
enterprise level like Wipro, added Chopra.

Talking to the media, Harinder Salwan, Secretary, Infotech Software Dealers
Association (ISODA) said, “Traditionally, Oracle has never been a
channel-friendly vendor....the Sun acquisition will raise many questions on the
future of Sun's channel partners. The success of Oracle and Sun marriage will
depend on integration and execution of the channel strategies....many of our
members are Sun partners, and they are apprehensive about synergies both the
partners will share in the future course. Oracle has operated as a software
business and diving into the hardware market will bring lots of new challenges.”

Giving a global perspective to their plans, Oracle has indicated that the
partner community of Sun will be merged into Oracle's channel partner program
and will be beneficial to the partners of both the sides. Once the deal is
finally closed, Sun partners will avail Oracle PartnerNetwork and will enjoy the
benefits and training options.

On Oracle's website, Sun customers and partners have been instructed to use
existing contacts for sales, support and professional services.

Gearing for competition

According to solution providers, the deal is bound to accelerate competition
among different players. As a result the market condition will be dominated by
stiff competition as various players will have to tighten their belts in order
to be at par with the industry. For instance, HP does not have a packaged
business application software than can go with its computer hardware products
and therefore it needs to strengthen its position in the market.

IBM is also likely to face stiff competition with Oracle. It is being said
that Oracle is planning to engineer and provide an integrated system
applications which will benefit the customers as their system integration cost
would go down and restructuring of application will enhance the system
performance and security. Therefore, IBM has to now build a strong platform for
database business, software business for enterprise along with the server
business.

Trend of M&As

Mergers and acquisitions is a common trend in the industry and Oracle has
made several acquisitions in the past such as BEA, Peoplesoft, etc. According to
a market source, Oracle has made around 60 acquisitions over the last 10 years.
The latest acquisition, of Oracle and Sun, in software industry is sure to lead
to possibilities of further mega mergers and acquisitions. According to an
international report, IBM is now eying Netaps, a software database company, in
order to strengthen its presence in three separate domains including database,
software and server business. As per news doing the rounds in the industry, the
other options for acquisition that IBM has could be EMC or Red Hat for getting
into Linux space.

Hurdles

The road laid ahead of Oracle is marked by several challenges and the
company will have to prove that the acquisition of Sun will have long term
benefits and not see it as a mere opportunity to extract profits. Also, it is
widely known that Oracle has never worked with a hardware company and post
merger, it would have to prove its potential to thrive and grow a hardware
business. Channel partners of Sun will have to wait and watch to see the extent
to which Oracle can churn out profits from the hardware business, how much time
it would take for Oracle to get accustomed to the new business and the impact on
the manpower of the acquired company.

Springboard Research has remarked that like all acquisitions, the success of
the Oracle and Sun marriage will depend on integration and execution. If it is
executed correctly, it will change the dynamics of IT in a substantial way, from
partner-based selling to end-to-end stacks.

Prevailing uncertainties

Since the acquisition was announced, there has been uncertainties about
MySQL, and that has become a bone of contention. Post acquisition, MySQL will be
become a part of Oracle's portfolio. It is being predicted that Oracle might
curtail the growth of MySQL or non-maintenance will lead to its silent death as
MySQL has been primarily growing in warehousing space, which has not been the
preferred area of operation for Oracle. The negligence may sweep off the open
source data base or, and if, it prevails it might become a competitor to the
cash vending solution of Oracle. If MySQL grabs a space in the enterprise
segment, customers might find the open source solution more lucrative than the
database of Oracle, which is known to be a bit costly.

Once the business between Sun and Oracle is implemented there is bound to be
some turbulence in the initial stage. However, it will take almost a year to get
the strategies operational at the ground level and witness the consequences of
the mega deal.

AMRITA TEJASVI

amritat@cybermedia.co.in