Originally published on Monday
Ahh, what to make of this? Good? Bad? Creative destruction? All of the above? Probably. Of course, it is too early to offer more than a few prognostications but that is what’s so much fun about this.
First, Sun’s shareholders got a dime more per share than the IBM offer $9.50 vs. $9.40 whoo hoo! Seriously, a dime over millions of shares is a lot of money—think about a good weekend in Vegas.
More seriously, the deal complicates Oracle’s relationship with Dell and HP which Oracle has courted aggressively recently. Last September Larry Ellison introduced the Exadata—part storage array part computer built in cooperation with HP to provide orders of magnitude better support for terabyte and bigger databases. A good idea. But now where does the budding relationship with HP go?
On the other hand, I wish I had a proverbial nickel for every Oracle database that was sold on a Sun box over the last three decades. Sun’s customers are Oracle’s customers but the same can be said of HP.
Oracle made a concerted effort a few years ago to maintain its position as a lead dog in the software market. With it comes stature for sure but also the market position to drive pricing in an era that will continue a long trend toward greater affordability. Too many businesses and their business processes are absolutely dependent on IT hardware and software and that dependency drives an absolute need for cost containment. The best way to get cost containment is to vertically integrate and that is what Oracle is increasingly doing.
Vertical integration can happen in two ways. Oracle is following a more or less time-honored approach of owning all of the factors of production and presumably selling bundles of technology in the future. I think Adam Smith would approve. The other approach, interestingly enough, is to verticalize a la Salesforce.com. Hiding all of the stack, hardware and labor behind the cloud enables the same kind of economy of scale. The first approach is decidedly 20th century the latter tacks to the 21st. The newer approach aggressively commoditizes infrastructure. Oracle must see this and presumably it has determined it is better to drive the commoditization process than to be the victim of it.
Oracle’s acquisition of Sun is a necessary next step for the company if it expects to continue growing and to compete with rivals like IBM and HP each of which is pursuing a variant of the 20th century model. Will it be enough? Probably. In any event we still need—and will for a long time—companies that make the hardware on which the cloud computing infrastructure runs. I think of this news as interesting, not wholly unexpected and symptom of the economic forces every industry is subject to.
Today is Patriots’ Day in Massachusetts, no big deal in most other parts of the world but today we celebrate the battles of Lexington and Concord, which started the American Revolution. Those battles are famous for the “shot heard ‘round the world” and I suppose much the same could be said of Oracle’s acquisition of Sun. This could not have been planned but it offers an interesting historical note.