The rationales behind the Oracle-Sun deal

The (planned) Oracle/Sun deal has gained a lot of attention. There was a lot of discussion of the rationales behind. But most of them didn't really touch the point why Oracle will spend so much money for Sun. Have a look at the rationales:

The hardware?

Not really. Oracle never has done hardware business before. That is another type of business. For sure there are some advantages. It is a little easier for Oracle to offer appliances, but they could have done this with standard hardware and some flavour of Linux. For sure, for big shops that might become interesting - highly scalable hardware and the database or application server or a business system. But on the other hand, the overall margins will decrease for these deals. And the aspect that it becomes cheaper for Oracle to equip its own cloud data centers in the future isn't worth to take the risk of a hardware business.

The Solaris operating system?

As well - some few advantages but no real one. With hardware and a high-level server operating system, Oracle is more competitive with companies like IBM and Oracle, the (from a revenue perspective) real big guys in the industry. And Oracle might even bring some market share back to Solaris, by preferring that OS. But overall, there is not that much value in there. Solaris is fine for large cloud data centers, but it is overkill for many appliances. The overall value of obtaining an OS thus is somewhat limited for Oracle.

The IAM and GRC tools?

Even while we are experts around IAM and GRC - that wasn't the reason behind. In contrast, that is one of the areas with a huge overlap and thus a lot of potential problems in defining a roadmap and migration paths for existing customers.

The cloud?

Again - not really. There are some advantages in having own hardware and an operating system for high scale cloud data centers. But Oracle would have been well able to manage the move towards the cloud without that. And if it were about the cloud, there probably would have been better choices than Sun.

The psychology?

Yes, to some degree. Oracle now really competes with IBM at any level. It has an own operating system. But that is not the real rationale behind the deal, even while that thought might have influenced the decision making.

The market share?

Which market share? Oracle is buying market share, no doubt. They have done this with acquisitions like PeopleSoft, they have done this especially when acquiring BEA. But there is a rationale behind that about which I will talk later.

The Java stack?

No. There are probably more risks than advantages. Improving the stack itself is an investment without direct return. That might improve the position of Oracle in the application server field. But given that Sun has "owned" Java and nevertheless hasn't been the leader in the market of application infrastructures shows that this is not the main reason. Besides this, there might be sort of a trust issue in Oracle owning that stack - Sun has been more trusted in supporting open source than Oracle is. And other companies like IBM and SAP which are heavily relying on Java might as well be somewhat disappointed. Oracle is a much more heavyweight competitor for them than Sun has been.

And yes. Oracle will be able to drive some things forward in the stack. Think about an integration of JAAS (Java Authentication and Authorization Service) with Oracle's concept of SOS (Service Oriented Security). By doing this, Oracle might gain some advantage for their "engines" which provide these services and some tighter integration than others can provide.

The application server?

Yes, to some degree. The market share of what Sun provides around application infrastructures (development tools and so on) is somewhat relevant but not the main reason. But overall there is the question whether Oracle really wants to maintain Glassfish, Fusion, and WebLogic. And for sure Oracle expands its grip on that market.

The expanded lead in application infrastructures?

Here you go. That is the real target of Oracle. That is why they have bought BEA, that is why they have been heavily investing in IAM and other areas of the IT market. For a long time, there have been the operating systems and the business applications as the instruments of power in the IT industry. That is changing, with the business processes and the supporting application infrastructure becoming the new instrument of power. That is the reason why companies like Oracle, SAP and IBM (based on Java) as well as Microsoft (based on the .NET Framework) are heavily competing for that market. The one who is in control of the business process platform has managed to achieve the vendor lock-in - the more specific features of the platform are used, the more lock-in.

That is, from my perspective, the real rationale behind that deal. From that perspective, it is not that much a market share deal but a market power deal. That is the reason why Oracle buys several elements of limited value for Oracle (not of limited value from an overall perspective, for sure!). That is the reason why Oracle again spends a lot of money and takes some risks. Java helps, the market share in the application server market helps. But they are not the key reasons for that decision.

Interestingly, most customers haven't yet understood what is happening in the IT market from a strategic point of view. Otherwise, they wouldn't leave platform decisions in the area of IT infrastructure to some developers and architects or, in best case, the CIO, but understand that as a decision with a long-term strategic impact on the entire organization.



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