Yesterday I read an interesting blog commenting on why Oracle seems so interested in Sun’s hardware.
I quote from a comment by Brian Aker, former head of architecture for MySQL on the O’Reily Radar blog site. He comments on his view on why Oracle bought Sun,
Brian Aker: I have my opinions, and they’re based on what I see happening in the market. IBM has been moving their P Series systems into datacenter after datacenter, replacing Sun-based hardware. I believe that Oracle saw this and asked themselves “What is the next thing that IBM is going to do?” That’s easy. IBM is going to start pushing DB2 and the rest of their software stack into those environments. Now whether or not they’ll be successful, I don’t know. I suspect once Oracle reflected on their own need for hardware to scale up on, they saw a need to dive into the hardware business. I’m betting that they looked at Apple’s margins on hardware, and saw potential in doing the same with Sun’s hardware business. I’m sure everything else Sun owned looked nice and scrumptious, but Oracle bought Sun for the hardware.
I think that Brian has a good point. In fact, in a post I wrote a few months ago, I commented on the fact that hardware is back. It is somewhat ironic. For a long time, the assumption has been that a software platform is the right leverage point to control markets. Clearly, the tide is shifting. IBM, for example, has taken full advantage of customer concerns about the future of the Sun platform. But IBM is not stopping there. I predict a hardware sneak attack that encompasses IBM’s platform software strength (i.e., middleware, automation, analytics, and service management) combined with its hardware platforms.
IBM will use its strength in systems and middleware software to expand its footprint into Oracle’s backyard surrounding its software with an integrated platform designed to work as a system of systems. It is clear that over the past five or six years IBM’s focus has been on software and services. Software has long provided good profitability for IBM. Services has made enormous strides over the past decade as IBM has learned to codify knowledge and best practices into what I have called Service as Software. The other most important movement has been IBM’s focused effort over the past decade to revamp the underlying structure of its software into modular services that are used across its software portfolio. Combine this approach with industry focused business frameworks and you have a pretty good idea of where IBM is headed with its software and services portfolios.
The hardware strategy has begun to evolve in 2005 when IBM software bought a little hardware XML accelerator hardware appliance company called DataPower. Many market watchers were confused. What would IBM software do with a hardware platform? Over time, IBM expanded the footprint of this platform and began to repurpose it as a means to pre-packaging software components. First there was a SOA-based appliance; then IBM added a virtual machine appliance called the CloudBurst appliance. On the Lotus side of the business, IBM bought another appliance company that evolved into the Lotus Foundations platform. Appliances became a great opportunity to package and preconfigure systems that could be remotely upgraded and managed. This packaging of software with systems demonstrated the potential not only for simplicity for customers but a new way of adding value and revenue.
Now, IBM is taking the idea of packaging hardware with software to new levels. It is starting to leverage the software and networking capability focused on hardware-driven systems. For example, within the systems environment, IBM is leveraging its knowledge of optimizing systems software so that it applications-based workloads can take advantage of capabilities such as threading, caching, and systems level networking.
In its recent announcement, IBM has developed its new hardware platforms based on the five most common workloads: transaction processing, analytics, business applications, records management and archiving, and collaboration. What does this mean to customers? If a customer has a transaction oriented system, the most important capability is to ensure that the environment uses as many threads as possible to optimize speed of throughput. In addition, caching repetitive workloads will also ensure that transactions move through the system as quickly as possible. While this has been doable in the past, the difference is that these capabilities are packaged as an end-to-end system. Thus, implementation could be faster and more precise. The same can be said for analytics workloads. These workloads demand a high level of efficiency to enable customers to look for patterns in the data that help predict outcomes. Analytics workloads require the caching and fast processing of algorithms and data across multiple sources.
The bottom line is that IBM is looking at its hardware as an extension of the type of workloads they are required to support. Rather than considering hardware as as set of separate platforms, IBM is following a systems of systems approach that is consistent with cloud computing. With this type of approach, IBM will continue on the path of viewing a system as a combination of the hardware platform, the systems software, and systems-based networking. These elements of computing are therefore configured based on the type of application and the nature of the current workload.
It is, in fact, workload optimization that is at the forefront of what is changing in hardware in the coming decade. This is true both in the data center and in the cloud. Cloud computing — and the hybrid environments that make up the future of computing are all predicated on predictable, scalable, and elastic workload management. It is the way we will start thinking about computing as a continuum of all of the component parts combined — hardware, software, services, networking, storage, collaboration, and applications. This reflects the dramatic changes that are just at the horizon.
I spent a couple of hours today listening to Oracle talk about the long-awaited integration with Sun Microsystems. A real end of an era and beginning of a new one. What does this mean for Oracle? Whatever you might think about Oracle, you have to give the company credit for successfully integrating the 60 companies it has purchased over the past few years. Having watched hundreds and perhaps thousands of acquisitions over the last few decades, it is clear that integration is hard. There are overlapping technologies, teams, cultures, and egos. Oracle has successfully managed to leverage the IP from its acquisitions to support its business goals. For example, it has kept packaged software customers happy by improving the software. Peoplesoft customers, for example, were able to continue to use the software they had become dependent on in primarily the same way as before the acquisition. In some cases, the quality of the software actually improved dramatically. The path has been more complicated with the various middleware and infrastructure platforms the company has acquired over the years because of overlapping functionality.
The acquisition of Sun Microsystems is the biggest game changer for Oracle since the acquisition of PeopleSoft. There is little doubt that Sun has significant software and hardware IP that will be very important in defining Oracle in the 21st century. But I don’t expect this to be a simple journey. Here are the five key issues that I think will be tricky for Oracle to navigate. Obviously, this is not a complete list but it is a start.
Issue One: Can Oracle recreate the mainframe world? The mainframe is dead — long live the mainframe. Oracle has a new fondness for the mainframe and what that model could represent. So, if you combine Sun’s hardware, networking layer, storage, security, packaged applications, middleware into a package do you get to own total share of a customer’s wallet? That is the idea. Oracle management has determined that IBM had the right ideas in the 1960s — everything was nicely integrated and the customer never had to worry about the pieces working together.
Issue Two: Can you package everything together and still be an open platform? To its credit, Oracle has build its software on standards such as Unix/Linux, XML, Java, etc. So, can you have it both ways? Can you claim openness when the platform itself is hermetically sealed? I think it may be a stretch. In order to accomplish this goal, Oracle would have to have well-defined and published APIs. It would have to be able to certify that with these APIs the integrated platform won’t be broken. Not an easy task.
Issue Three: Can you manage a complex computing environment? Computing environments get complicated because there are so many moving parts. There are configurations that change; software gets patched; new operating system versions are introduced; emerging technology enters and messes up the well established environment. Oracle would like to automate the process of managing this process for customers. It is an appealing idea since configuration problems, missing links, and poor testing are often responsible for many of the outages in computing environments today. Will customers be willing to have this type of integrated environment controlled and managed by a single vendor? Some customers will be happy to turn over these headaches. Others may have too much legacy or want to work with a variety of vendors. This is not a new dilemma for customers. Customers have long had to rationalize the benefits of a single source of technology against the risks of being locked in.
Issue Four: Can you teach an old dog new tricks? Can Oracle really be a hardware vendor? Clearly, Sun continues to be a leader in hardware despite its diminished fortunes. But as anyone who has ventured into the hardware world knows, hardware is a tough, brutal game. In fact, it is the inverse of software. Software takes many cycles to reach maturation. It needs to be tweaked and finessed. However, once it is in place it has a long, long life. The old saying goes, old software never dies. The same cannot be said for hardware. Hardware has a much straighter line to maturity. It is developed, designed, and delivered to the market. Sometimes it leapfrogs the competition enough that it has a long and very profitable life. Other times, it hits the market at the end of a cycle when a new more innovative player enters the market. The culmination of all the work and effort can be short as something new comes along at the right place at the right time. It is often a lot easier to get rid of hardware than software. The computer industry is littered with the corpses of failed hardware platforms that started with great fanfare and then faded away quickly. Will Oracle be successful with hardware? It will depend on how really good the company is in transforming its DNA.
Issue Five. Are customers ready to embrace Oracle’s brave new world? Oracle’s strategy is a good one — if you are Oracle. But what about for customers? And what about for partners? Customers need to understand the long-term implication and tradeoffs in buying into Oracle’s integrated approach to its platform. It will clearly mean fewer moving parts to worry about. It will mean one phone call and no finger pointing. However, customers have to understand the type of leverage that single company will have in terms of contract terms and conditions. And what about partners? How does an independent software vendor or a channel partner participate within the new Oracle? Is there room? What type of testing and preparation will be required to play?
I guess this is one way to start a Monday morning. After IBM decided to pass on Sun, Oracle decided that it would be a great idea. While I have as many questions as answers, here are my top ten thoughts about what this combination will mean to the market:
1. Oracle’s acquisition of Sun definitely shakes up the technology market. Now, Oracle will become a hardware vendor, an operating system supplier, and will own Java.
2. Oracle gets a bigger share of the database market with MySQL. Had IBM purchased Sun, it would have been able to claim market leadership.
3. This move changes the competitive dynamics of the market. There are basically three technology giants: IBM, HP, and Oracle. This acquisition will put a lot of pressure on HP since it partners so closely with Oracle on the database and hardware fronts. It should also lead to more acquisitions by both IBM and HP.
4. The solutions market reigns! Oracle stated in its conference call this morning that the company will now be able to deliver top to bottom integrated solutions to its customers including hardware, packaged applications, operating systems, middleware, storage, database, etc. I feel a mainframe coming on…
5. Oracle could emerge as a cloud computing leader. Sun had accumulated some very good cloud computing/virtualization technologies over the last few years. Sun’s big cloud announcement got lost in the frenzy over the acquisition talks but there were some good ideas there.
6. Java gets a new owner. It will be interesting to see how Oracle is able to monetize Java. Will Oracle turn Java over to a standards organization? Will it treat it as a business driver? That answer will tell the industry a lot about the future of both Oracle and Java.
7. What happens to all of Sun’s open source software? Back a few years ago, Sun decided that it would open source its entire software stack. What will Oracle do with that business model? What will happen to its biggest open source platform, MySQL? MySQL has a huge following in the open source world. I suspect that Oracle will not make dramatic changes, at least in the short run. Oracle does have open source offerings although they are not the central focus of the company by a long shot. I assume that Oracle will deemphasize MySQL.
8. Solaris is back. Lately, there has been more action around Solaris. IBM annouced support earlier in the year and HP recently announced support services. Now that Solaris has a strong owner it could shake up the dynamics of the operating system world. It could have an impact on the other gorilla not in the room — Microsoft.
9. What are the implications for Microsoft? Oracle and Microsoft have been bitter rivals for decades. This acquisition will only intensify the situation. Will Microsoft look at some big acquisitions in the enterprise market? Will new partnerships emerge? Competition does create strange bedfellows. What will this mean for Cisco, VMWare, and EMC? That is indeed something interesting to ponder.
10. Oracle could look for a services acquisition next. One of the key differences between Oracle and its two key rivals IBM and HP is in the services space. If Oracle is going to be focused on solutions, we might expect to see Oracle look to acquire a services company. Could Oracle be eyeing something like CSC?
I think I probably posed more questions than answers. But, indeed, these are early days. There is no doubt that this will shake up the technology market and will lead to increasing consolidation. In the long run, I think this will be good for customers. Customers do want to stop buying piece parts. Customers do want to buy a more integrated set of offerings. However, I don’t think that any customer wants to go back to the days where a solution approach meant lock-in. It will be important for customers to make sure that what these big players provide is the type of flexibility they have gotten used to in the last decade without so much pain.
Like everyone else, I have been looking what would happen if IBM were to buy Sun Microsystems. I actually thought it sounded pretty good. IBM would get hardware, some database, virtualization, cloud, and operating system software. Oh, and did I mention that they would control Java. But it sounds (at least as I am writing this) the negociations have broken down. Greed is an interesting phenomenon. Prior to overtures by IBM, Sun’s stock price was around $3.00 a share. IBM was offering as much as $9.50 a share. I actually thought that price was a bit high — but what do I know.
So, what happens now? I suspect this little drama is far from over. It is possible, if rumors are to be believed that Sun’s Chairman Scott McNealy will take over the reigns of the company once again to try to restore the company to its former glory. It has happened before. Steve Jobs returned to put Apple back on the right path. Michael Dell is trying to turn Dell into the innovator that it had been a decade ago. Will it happen this time? I think that there are some difficulties with this plan, if it is indeed true. A lot has changed since Sun declared in the 1980s that the network was the computer. Clearly, the company leadership was right. I was an observer of the pragmatic and brilliant marketing company that Sun became in the 1980s, when I worked for its competitor Apollo Computer that was later purchased by HP.
Today, the market is quite different than the market Sun and McNealy had successfully finessed. Today, the market is consolidating around either very strong global leaders such as IBM, HP, Microsoft, Oracle, Cisco, etc. There is a new generation of leaders emerging that had their start in the Internet era such as Google, Amazon, and Facebook and even Twitter. So, is there room for Sun to remake itself in this new world?
I guess that my take is that it will be very hard for Sun to resurface and remake itself. Here are the three main reasons that I have doubts and why I think that shareholders and board members should sell the company to IBM.
1. Sun Microsystems will have trouble regaining hardware leadership. While it has some reasonable hardware assets, it is not big enough to take on HP or the emergence of Cisco as a hardware players. Even companies like Google and Amazon play an important role in hardware — in the commodity relm.
2. While it owns some impressive software assets that it has bought over the past decade, Sun has never learned to leverage these assets to propel it into a leadership role. It has further confused the market by opening sourcing its software. While this might be popular in a down market, it is not enough to create a repeatable revenue stream. I was watching a funny video of Steve Gilmore interviewing current CEO Jonathan Swartz (as a puppet) that I think captures part of Sun’s problems.
3. Is there a single area of technology where Sun can innovate and out shine its competitors? I imagine there might be some hidden jewels that are transformational and will turn the market upside down inside Sun — but I doubt it. I think that as Cloud Computing moves to center stage, Sun could be a player but not a leader. To be successful, Sun will have to find a way to lead in some area.
The bottom line is that I do not see a good future for Sun as an independent company. I think that the damage has been done. Not only does the company have to regain shaky customer confidence but it quickly has to start making a profit. It is not an easy climate even for the strongest companies. While it is possible that McNealy will surprise us all and turn Sun from a struggling player in a consolidating market to a leader but it is probably too late. Customers who are watching this drama unfold will have to be convinced that Sun has staying power — not just for this year for future decades. If Sun tries to maintain independent, I predict a long and difficult path that will not necessarily end in success.
What a difference a year makes. The past year was filled with a lot of interesting innovations and market shifts. For example, Software as a Service went from being something for small companies or departments within large ones to a mainstream option. Real customers are beginning to solve real business problems with service oriented architecture. The latest hype is around Cloud Computing – afterall, the software industry seems to need hype to survive. As we look forward into 2009, it is going to be a very different and difficult year but one that will be full of some surprising twists and turns. Here are my top predictions for the coming year.
One. Software as a Service (SaaS) goes mainstream. It isn’t just for small companies anymore. While this has been happening slowly and steadily, it is rapidly becoming mainstream because with the dramatic cuts in capital budgets companies are going to fulfill their needs with SaaS. While companies like SalesForce.com have been the successful pioneers, the big guys (like IBM, Oracle, Microsoft, and HP) are going to make a major push for dominance and strong partner ecosystems.
Two. Tough economic times favor the big and stable technology companies. Yes, these companies will trim expenses and cut back like everyone else. However, customers will be less willing to bet the farm on emerging startups with cool technology. The only way emerging companies will survive is to do what I call “follow the pain”. In other words, come up with compelling technology that solves really tough problems that others can’t do. They need to fill the white space that the big vendors have not filled yet. The best option for emerging companies is to use this time when people will be hiding under their beds to get aggressive and show value to customers and prospects. It is best to shout when everyone else is quiet. You will be heard!
Three. The Service Oriented Architecture market enters the post hype phase. This is actually good news. We have had in-depth discussions with almost 30 companies for the second edition of SOA for Dummies (coming out December 19th). They are all finding business benefit from the transition. They are all view SOA as a journey – not a project. So, there will be less noise in the market but more good work getting done.
Four. Service Management gets hot. This has long been an important area whether companies were looking at automating data centers or managing process tied to business metrics. So, what is different? Companies are starting to seriously plan a service management strategy tied both to customer experience and satisfaction. They are tying this objective to their physical assets, their IT environment, and their business process across the company. There will be vendor consolidation and a lot of innovation in this area.
Five. The desktop takes a beating in a tough economy. When times get tough companies look for ways to cut back and I expect that the desktop will be an area where companies will delay replacement of existing PCs. They will make do with what they have or they will expand their virtualization implementation.
Six. The Cloud grows more serious. Cloud computing has actually been around since early time sharing days if we are to be honest with each other. However, there is a difference is the emerging technologies like multi-tenancy that make this approach to shared resources different. Just as companies are moving to SaaS because of economic reasons, companies will move to Clouds with the same goal – decreasing capital expenditures. Companies will start to have to gain an understanding of the impact of trusting a third party provider. Performance, scalability, predictability, and security are not guaranteed just because some company offers a cloud. Service management of the cloud will become a key success factors. And there will be plenty of problems to go around next year.
Seven. There will be tech companies that fail in 2009. Not all companies will make it through this financial crisis. Even large companies with cash will be potentially on the failure list. I predict that Sun Microsystems, for example, will fail to remain intact. I expect that company will be broken apart. It could be that the hardware assets could be sold to its partner Fujitsu while pieces of software could be sold off as well. It is hard to see how a company without a well-crafted software strategy and execution model can remain financially viable. Similarly, companies without a focus on the consumer market will have a tough time in the coming year.
Eight. Open Source will soar in this tight market. Open Source companies are in a good position in this type of market—with a caveat. There is a danger for customers to simply adopt an open source solution unless there is a strong commercial support structure behind it. Companies that offer commercial open source will emerge as strong players.
Nine. Software goes vertical. I am not talking about packaged software. I anticipate that more and more companies will begin to package everything based on a solutions focus. Even middleware, data management, security, and process management will be packaged so that customers will spend less time building and more time configuring. This will have an impact in the next decade on the way systems integrators will make (or not make) money.
Ten. Appliances become a software platform of choice for customers. Hardware appliances have been around for a number of years and are growing in acceptance and capability. This trend will accelerate in the coming year. The most common solutions used with appliances include security, storage, and data warehousing. The appliance platform will expand dramatically this coming year. More software solutions will be sold with prepackaged solutions to make the acceptance rate for complex enterprise software easier.
Eleven. Companies will spend money on anticipation management. Companies must be able to use their information resources to understand where things are going. Being able to anticipate trends and customer needs is critical. Therefore, one of the bright spots this coming year will be the need to spend money getting a handle on data. Companies will need to understand not just what happened last year but where they should invest for the future. They cannot do this without understanding their data.
The bottom line is that 2009 will be a complicated year for software. There will be many companies without a compelling solution to customer pain will and should fail. The market favors safe companies. As in any down market, some companies will focus on avoiding any risk and waiting. The smart companies – both providers and users of software will take advantage of the rough market to plan for innovation and success when things improve – and they always do.
I have had several comments on my posting about Sun and its acquisition of MySQL. While it is nice that Sun has a software strategy, I would like to point out an important fact — Sun Microsystems is a public company. As a public company, Sun’s management has a responsibility to its shareholders to make a profit. My key question is how will Sun make money from open source? Many of the customers who use MySQL use it because it works well and, most importantly, it is open source and free. While some of these customers will buy a maintenance license, many who have deep technical expertise will not need the help and will not spend the money. Is it possible that Sun will turn MySQL into the equivalent of a $1 Billion plus company? I am skeptical.
I do want to add that I think that open source software is extremely important. There are two primary reasons: open source allows the best minds in software to collaborate to create great innovation; and open source provides customers with the access to that innovation without having to make hard financial decisions at the start. However, with risk comes responsibility. Not all open source software is the responsibility — from both vendors to provide consistency, reliability, and innovation and from customers who need to pick open source software that will stand the test of time.
Just when it began to look like BEA might take itself private, the company gave into the mounting pressure and became the latest Oracle acquisition. A few months ago I wrote about my thoughts on the potential acquisition. While on the surface it might appear that Oracle is going after the customer base, I think that the move is more significant in terms of the software assets including middleware and business process management software. An interesting and little discussed asset is the high end Tuxedo transaction monitoring software developed by Bell Labs in the 1980s and commercialized by AT&T Unix Systems Labs, then owned by Novell and finally sold as part of the formation of BEA.
So, I think that Oracle did the right thing in acquiring BEA to fill in its middleware stack. However, the real question remains: how will Oracle be able to rationalize all of the middleware components to create a platform. For example, I predict that it will take years for BEA to have a Fusion middleware stack that incorporates BEA’s value. The same issue will persist for business process software. The assets from various acquisitions will have to be sorted out. I thought that James Governor made some interesting observations in his recent blog on Oracle. Josh Greenbaum, as usual has some interesting thoughts about Oracle’s approach to the market…At least where Oracle is concerned, we won’t be bored.
Now, about Sun Microsystems. I have to say that the acquisition of MySQL left me scratching my head. Sun seems to have taken on the mantle of the place where software goes to die. Can you spell Forte (a development environment with $80 million in revenue that Sun acquired for $450 million — what a deal!)? How about other notable acquisitions like NetDynamics, and Netscape Application Server? There are others, of course, but I can’t remember their names anymore. Even with the Java franchise Sun hasn’t figured out how to make money on software.
So, what about MySQL which Sun payed $1 billion dollars for? Jonathan Swartz in his blog makes a case that Sun can win in the market though a focus on open source software. While commercial support of open source is important for customers I suspect that it won’t really help Sun’s revenue climb. Clearly, one of the reasons that MySQL has been successful is that it works and is open source — I can’t figure out how Sun will leverage this asset to build a successful commercial business.