Sun + Oracle = new troubles in Enterprise 2.0 land

This morning Oracle announced its purchase of Sun Microsystems for $9.4 per share or $5.6 billion, net of cash and debt. The money quote by Oracle’s president, Charles Phillips:

This could lead to, in effect, shrink-wrapped suites of hardware and software for specific sectors of the economy, from retailing to banking to communications. He called this delivering “a complete industry in a box.”

The promise is that corporations will have what they’ve always said they wanted: one neck to choke.

There’s plenty of commentary supporting the pros and cons of this deal. ZDnet writer, Dana Gardner says sees a positive side to this:

Among them is the fact that IBM now — for the first time, really — has a true, full and global counter weight to its role and influence. Oracle plus Sun aligned with Hewlett-Packard (which I fully expect) meets and begins to beat IBM at all the important full-service IT games.

Dennis Howlett’s opinion with his “curmudgeon’s curmudgeon hat on” is:

“I can’t help but think this is a dark day for the enterprise computing business. Who worse to entrust your entire stack than Oracle, that voracious consolidator of application providers and now, it seems, guzzler of open source and hardware?”

You can read all about it here.

Looking at all this and its implications from an Enteprise 2.0 vector, a couple of things jump out at me.

System Integrators are doing the chicken dance right about now

The incremental revenue from selling stand alone applications now has a much higher opportunity cost for a System Integrator (SI). For pure play enterprise 2.0 vendors, this means that it just got order of magnitude harder to get an SI to pay attention to them, if they’re want to sell to large organizations.

Yes, SaaS is all the rage right now, but the holy grail of application software sales still is and will remain getting on the radar of the large pure play and integrated SIs such as Deloitte, Accenture, and HP (EDS). To successfully go from a $100 million dollar company to a $1B+ company, social computing vendors are going to need the reach that Systems Integrators provide. You might argue that SaaS (if its a SaaS offering) has a different distribution dynamic but honestly, unless it’s like Salesforce.com where thousands of individual buyers can put down a credit card and start using your product, it’s going to need an expensive sales force or the air cover that an SI partner can provide.

If Sun + Oracle signals an industry trend, it means an entirely new opportunity for SIs. The prospects of a lucrative integration and a waning outsourcing business being displaced or complimented by mammoth enterprise wide and complete stack deployment engagements is entirely too juicy. This could be signal another round of large ERP sized engagements that we haven’t seen since Y2K. Either way, it a massive enough opportunity for an SI to drive big ticket projects and they’re likely not going to want to be distracted by point solutions that require managing a new bench, have unproven lead flow, and require extensive training. Enterprise 2.0 has all of these characteristics at this time.

The fate of MySQL

The joint press release by Jonathan Schwartz and Larry Ellison made no mention of MySQL. Zero. Nada. Andrew LaVallee poses a good question on Wall Street Journal’s Digit Blog: “Wither MySQL?“. He quotes Curt Monash as saying that “Oracle could evolve MySQL in a direction that makes it sensible to put a MySQL transparency front end onto the Oracle DBMS”

As a social computing vendor using MySQL, whether appliance, SaaS or installed, a significant component of it’s architecture now faces an unknown future. In the immediate term I don’t expect much to happen. In the short to long term, social computing vendors are going to have to be ready to potentially jump off MySQL, which means more costs. Another scenario is that long term Oracle begins to charge for supported stand alone versions not tied into Oracles DB, which means the cost of business (and in turn, customer pricing) needs to go somewhere north. Of course MySQLs fate is all speculation at this point. Om Malik on GigaOm, sees this acquisition as Oracle removing Sun, its number one threat in the database business.

What I’m personally hoping for is that Oracle realizes that MySQL is a super opportunity for them to tackle the SMB and Mid Market business, leaving its flagship database for larger buyers. That would be a great outcome for the majority of Enterprise 2.0 vendors, as well as buyers.

Oracle wants to be the “Apple of the Enterprise”

TechCrunch Co-Editor, Erick Schonfeld says “Oracle wants to be the Apple of the Enterprise…” If this is true, in the large scheme of things (in other words, when compared to the overall Stack), social computing is but a small piece at this time. If 99% of a given customers solution is being powered by an Oracle Stack + say HP services, Oracle stands a much better chance at rolling in its’ own integrated social computing offerings, similar to how Microsoft distributed SharePoint along with Exchange. More importantly it buys Oracle time. If they power the entire stack at many of the large organizations, they have the luxury to see, first hand, when each customer is ready to tackle Enterprise 2.0 and strike when the iron is hot.

If this scenarios plays out, it will undoubtedly lead to some Enterprise 2.0 software acquisitions, however it adds uncertainly to second and third tier vendors that can’t get on the radar of corporate development number crunchers, at large acquirers.

At the end of the day, there will always be a market for pure play vendors that haven’t standardized on one platform or prefer best of breed software. It just got a little smaller. And if you sell to the mid market, this is less of an issue. But overall, as an enterprise social computing software vendor, integrator, or buyer, if you haven’t stopped to consider what this acquisition and it potential to kick off a market trend means for you, it’s time to huddle.

What other positive or negative impacts on the social computing landscape do you see?

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Peter Mojica
Peter Mojica

Sameer - My initial reaction was "bye bye MySQL" but then in retrospect I realized that it wouldn't be prudent for Oracle to disenfranchise a very large open source community around that product line. It makes more sense that MySQL will be Oracle's deep dive education into open source commercialization and perhaps continue in a more metered way Schwartz's vision around open source software. In all of the write-ups today, I have seen mentions about IBM, comparisons to the stack, HP etc. But there has been little mention of Microsoft. IMO, it seems that the largest worry is for the consumer fate of MS SQL. Sun has a large software portfolio, the pick up of Identity is a good pickup for Oracle. Oracle's portfolio is strong also, if someone figures out how to use the pieces from some of their content acquisitions, such as Stellent, with MySQL on low-cost Linux or free Solaris OS boxes, you can say bye bye to SharePoint and a number of others applications that you find further up the stack. As with all mega mergers, the teams that sit back and rationalize the respective portfolios and point them in the new directions will either make it happen or not. The is definitely opportunity, even for Web 2.0 to grow at an accelerated pace.

Larry Hawes
Larry Hawes

Good post, Sameer! I agree that Oracle is not in a rush re: social software. Their collaboration offerings have never gained much traction in the marketplace. The Sun deal is likely more about taking out MySQL and being able to sell software/hardward combos as appliances. The latter could, in fact, throw a wet blanket on the chicken dance that you suggest the SIs are doing right now.

Sameer
Sameer

Hi PeterYou bring up some awesome points. I agree, there's very little about MS in this conversation. From an Enterprise 2.0 stand point though, I think this move by Oracle adds one more trend to be aware off. Unseating SharePoint has been the focus of every social networking (enterprise), wiki and collaboration vendor. However now Enterprise 2.0 upstarts need to consider other pure play competitors, SharePoint, Oracle and IBM (if the one vendor race picks up) and very soon, a host of content management vendors that are getting ready to inject 2.0 into their ECM offerings. It could well be that Oracle and IBM offer social computing at (as did MS when you bought exchange) to sell the rest of the stack and services. That's more trouble for pure plays, limiting them to customers that have committed to a best of breed strategy. That said, there's plenty of business for pure plays from 1000s of customers that have committed to a best of breed strategy or are moving to the cloud so they have more control of who they work with. Also, the amazing innovation coming out of these pure play providers makes me excited about getting customers to take a look here.

Sameer
Sameer

Thanks Larry. I'm sure it has a lot to do with MySQL but my gut is that its the defensive part of the equation. Pure 100% offense comes from Oracles ability to take on IBM on the stack side for now. It also buys them some oxygen to decide whether they want to do hardware + software or just control the software stack by selling off the hardware biz to HP and partnering with them on Services. Then you have Oracle+HP vs.IBM.

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