A few weeks ago, it looked like IBM was going to make a deal to purchase Sun. That fell through when the Sun board could not come to agreement. On April 20th, with very little rumor in the marketplace, Oracle announced they were buying Sun for $7.4B in cash. What does this mean for the new company?

• To quote a recent Oracle publication, “Oracle plans to engineer and deliver an integrated system – applications to disk – where all the pieces fit and work together, so customers do not have to do it themselves.” Sun is already shipping Infiniband switches and blades with InfiniBand on the motherboard. They have also mentioned IB is on the roadmap for the Sun 7000. Andy Bechtolsheim mentioned it at the Sun product announcement on April 14th. What about an integrated Oracle appliance running on Nehalem blades, Solaris x64,  Sun 7000 storage, and using Infiniband switches. It should not be a major technology leap to put it all together. What would this mean for the Oracle/HP appliance?
• Sun SPARC processors are at an Oracle pricing disadvantage to IBM Power processors in the current Oracle pricing model. Oracle has never been afraid to use pricing to move the market in their direction. Watch for them to use their pricing model to encourage customer to buy Sun servers.
• Solaris x64 has been intentionally neglected by Oracle. Oracle delivers patches on Solaris SPARC and Linux immediately. Then, they have historically waited up to 6 months to release that same patch for Solaris x64. In the past, this has helped Oracle push their Linux agenda in the marketplace. Given the ease of porting the Oracle patches to Solaris x64, there is no logical technical reason for this lag. Watch for Solaris x64 to become a first class citizen in the Oracle OS support matrix now that growth of Solaris x64 means growth for Oracle.

• Storage – Sun is not generally thought of as a storage company. However, an Oracle executive recently announced in a Sun all hands meeting that Oracle was buying Sun for Solaris, Java, and storage. Look for the Sun 7000 to pick up some new features to integrate tighter with Oracle. Perhaps Analytics that give visibility across both Oracle, Solaris, and the storage? Oracle performance could benefit from the large cache footprint and even larger flash cache. The Sun 7000 is trying to reduce hardware costs and in the past Oracle has loved reducing hardware costs in order to leave more budget available for software.
• Servers – I would expect business as usual at Sun on the server front. Oracle has no play in the hardware space today and Sun makes solid products. Sun’s server business generates positive cash flow every quarter. This is part of why they bought Sun, right? According to a recent release from Oracle, “Oracle plans to grow the Sun hardware business after the closing, protecting Sun customers’ investments and ensuring the long-term viability of Sun products.”
• MySQL – Many users adopt MySQL to escape Oracle pricing. The largest market is in the Web 2.0 space, but they play in other parts of the market as well. There is no way to kill MySQL because it is open source. If Oracle/Sun stopped supporting it today, there would be a well funded startup tomorrow stepping in to take their place. Many of my MySQL contacts have already moved on from Sun. In fact, some major MySQL users are turning to the community and other sources for their MySQL support and patches. Oracle already owns TimesTen, Berkeley DB, and InnoDB, so MySQL could just become another DB on the list. If Oracle really wants to put the pressure on Microsoft SQL, then they will encourage the use of MySQL and provide an easy migration path to Oracle DB.
• The Wall Street Journal reported that the IBM deal fell through when the Sun board split into two factions. The one in favor of the IBM deal was led by Jonathan Schwartz and Scott McNealy headed the group opposing the acquisition. When the CEO takes that kind of stand and loses, one must wonder what this foretells of his future. I think there is a high likelihood we will see Jonathan move on to a new opportunity in the next few months.
• Identity Management – Oracle and Sun have overlapping products here. When both products are ‘good enough’ I tend to lean towards the buyer. That said, Sun has their product somewhat integrated into Solaris, so I do not think it will go away. This one may be too close to call. There may also be some regulatory scrutiny on this as the combined market share will be significant.
• Sun IBIS – Sun has been trying to centralize to a single ERP system over that last few years. This is a project that should never have impacted Sun’s customers, partners, or suppliers. Unfortunately, there have been a few hiccups and many delays along the way and it has effected many organizations outside of Sun. Look for Oracle to bring the resources to the table to clean this up.

I think we would have seen some serious regulatory scrutiny of the IBM acquisition of Sun. On the surface, it looks like there are very few issues with Oracle and Sun. The only two issues I see are Identity Management and mySQL. I don’t think either one should be a major issue, but the government may. I don’t think Oracle will have a problem finding a workable solution for either potential objection.

A couple thoughts that are a little further out of the box:

• An Oracle appliance would give Oracle a private cloud play in the datacenter. Oracle has a large cloud presence today with Oracle On Demand. They could position themselves as the enterprise application private and public cloud provider. Cloud computing is the natural evolution of outsourcing. Oracle could compete with IBM Global Services on the high end and Amazon on the low end. Who better to outsource your enterprise applications to than the company that wrote them?
• DTrace could be integrated into Oracle to provide a whole new level of observablity. What if DTrace had a GUI that was able to observe systems across the database, server, and storage?
• Oracle is based on transactions and ensuring transactional integrity is maintained all the way from the Oracle DB to the hard drive. Sun’s zfs is a transaction engine for storage that is most commonly used to present a filesystem. The zfs transactional model is completely exposed through their API. What would hapen to Oracle performance if they plugged into the zfs transactional engine and took advantage of the zfs integration with SSD/Flash?
• Oracle could take OpenOffice to market and try to compete with Microsoft for the desktop. I am not suggesting that OpenOffice is perfect or as full featured as Microsoft Office, but Oracle has a history of monetizing software very effectively.
• Oracle and Sun have both been working on Xen. I assume they are both working on tools to manage virtual environments. Do they try to enter the virtualization space? The hypervisor is well on the way to commoditization (read: free), but what about a virtualization appliance. Sun has the hardware and Oracle does a pretty good job on the software side.
• Sun is a major proponent of Infiniband. One of the potential limiting factors in Oracle RAC environments is the latency of the cluster interconnect. What impact would Oracle’s endrsement of Infiniband have in the marketplace? How would this impact Cisco’s Data Center Ethernet (DCE) plans?

What are a couple of the potential challenges in this acquisition?

• A few analysts have suggested that Oracle will sell off the Sun hardware business. I can not see it. Why would they do that? As mentioned above, Oracle states in the Oracle/Sun FAQ, “Oracle plans to grow the Sun hardware business after the closing, protecting Sun customers’ investments and ensuring the long-term viability of Sun products.”
• Oracle has never had hardware in their portfolio. How does this affect their relationships with IBM, HP, Dell, EMC, and NetApp?
• Pillar is a small, but very well funded, storage company. Tako Ventures is the largest investor in Pillar and has a seat on the board. Lawrence Investments is the owner or Tako Ventures and Lawrence “Larry” Ellison provides the capital behind Lawrence Investments. So, Larry will own two storage companies when the Sun deal closes.
• Sun and Oracle have very different cultures at the field level. How will that play out? Given Sun’s latest reorganization, I think the sales organization could be plugged into a new company quite easily. It almost appears like it was designed to be portable. Perhaps that was a design criteria?

How does it affect the rest of the industry?

Once the IBM news broke, it was generally expected that Sun would be acquired. Even if the IBM deal fell through, someone else would buy Sun. I expected it to be one of the major systems vendors such as HP or Dell. If I let my mind wander a bit, I could convince myself that Cisco or EMC might take the opportunity to enter a new space. I did not expect Oracle to jump in and make the deal. I don’t think the rest of the industry expected it either. Any company who makes a living selling hardware for enterprise applications in the datacenter is unhappy about this acquisition. Oracle is the largest vendor of enterprise application software. When they sold no hardware, their support matrix and pricing model would drive hardware buying decisions. Now that they will have their own hardware portfolio, I expect them to push customers towards Solaris, Sun storage, and Sun SPARC and x64 servers.

The current state of the economy has driven down stock prices. This is a buying opportunity for companies with a war chest. Cisco took out a $4B bond a couple months back, which suggests they are shopping. IBM, EMC, Dell, HP, NetApp, and Cisco and have money to invest. Sun is the first major transaction of the year, but I do not think it will be the last.

Full disclosure: My company is a partner of both Sun and Oracle.

Update: I have added another post on the subject of Oracle selling off the Sun hardware business

1. Oracle & Sun – What to do with the hardware business
2. Why Oracle is NOT going to sell off Sun’s hardware business
3. Exadata V2 Surprises
4. Will SSD be the hottest storage topic in 2009?
5. Warning – A Sun kernel patch can break IP Multipathing