Tuesday, July 1, 2008

Vendors Survival: Will Sun Microsystems Survive until 2018?

I will start my post by quoting Garner Group's Magic Quadrant for Application Infrastructure for Back-End Application Integration Projects 2Q07 first Caution on Sun Microsystems:
"Sun's sales force was ill-prepared for the SeeBeyond acquisition, which significantly hurt SeeBeyond's momentum. The sales force has been trained,
but Sun must rebuild momentum in a market where growth is flattening".

In sumary, according to Gartner Group Sun sales force was not prepared for the SeeBeyond acquisition based on Seebeyond's SOA products. As a result SeeBeyond's momentum in that market disappeared and should be rebuilt (Sun lost momentum in the SOA market).

Why is this quote from the Research Note, which I read freely from BEA's Web Site, so important? It is important because it describes a Pattern.
Similar statements could be written about previous Sun initiatives and acquisitions:

1. Sun invented and built the Java programming language, but is lagging behind IBM and Borland in Java Language market share.

2. Sun built the Java Platforms (J2SE, J2EE and J2ME) but is lagging behind IBM, BEA, Oracle and even Open Source Jboss in J2EE Application Servers market.

3. Sun acquired FORTE in 1999 .In my opinion (and all leading Market Analyst firms shared this opinion) the best High-End Client/Server Application Development product. FORTE's momentum was never rebuilt again.

4. NetBeans Java Open Source Integrated Development Environment (IDE) supported by Sun is competing with another Open Source IDE Eclipse originated by IBM. Eclipse is more successful than NetBeans.

Eclipse members list includes leading vendors such as Adobe, Borland, CA, Fujitsu, Google, HP, Hitachi, Intel, Nokia, Novell, Oracle, SAP, SAS, Software AG, Tibco, Zend and even MySQL joined the Eclipse community.

NetBeans partners list is shorter and does not include many of the Java market leaders.
Amazon, eBay and Jboss are among NetBeans strategic partners. Capgemini, HP, Nokia and Wipro are NetBeans community partners.

The cited above pattern is not the only reason for predicting possible acquisition of Sun by a Mega Vendor (see also my post Vendor Survival Guide: Supermarket, Grovery and Kiosk) . Other reasons will be presented after presenting Sun's assets.
Notice, that ten years predictions could be very inaccurate, so my prediction could be wrong.
Sun's Assets
Sun his one of the three UNIX hardware leaders. The other two are IBM and HP. The UNIX servers include Operating System and other infrastructure products. Solaris Sun's UNIX is recently distributed as an Open Source product. Sun is also distributing Solaris on other platforms e.g. IBM Mainframe.

In the last years in addition to selling servers based on its SPARC processors, Sun builds and sells servers based on other vendors processors, mainly AMD's processors but also Intel's processors.
  • Storage hardware
Sun manufactures Storage hardware such as Disks and Tapes systems. On
2005 Sun acquired StorageTek a leading tape systems manufacture.
  • Other hardware
The company produces other hardware devices such as workstations.
  • Java software
The company portfolio includes Application Server (IPlanet), participation in Open Source Application Server project (GlassFish), Enterprise solutions (JES) and Desktop solution (JDS). Because of its history as the creator of Java, Sun is leading the Community Process of the Java platform evolution.
  • SOA and Integration
Sun's solutions are mainly SeeBeyond's solutions. SeeBeyond an EAI and a SOA integration market leader, was acquired by Sun.
  • Database Management
Recently (February, 2008), the company acquired the Open Source DBMS market leader MySQL.
Sun's IDM product is a technically solid solution and a market leader. The IDM is part of the JES.
  • Office applications
The company develops and sells Office applications originated from Staroffice acquisition. A limited version was released as an Open Source project named OpenOffice.
Analysis
Sun main competitors in all markets are larger vendors. The company changed its strategy few times in the last years. Too frequent strategy changes reflect business dilemma (DEC's last years prior to being acquired by Compaq were characterized by frequent strategy changes).
The departure of Sun's Chairman and co-founder Scott McNealy is another sign showing difficulties
UNIX
The server processors market is consolidated. Sun will not be able to compete for Long Term with Intel, AMD and IBM using its own SPARC processors .
Sun is building new server lines based on AMD and Intel processors supports my claim.
UNIX market is shrinking gradually and Linux share is growing.
It is reasonable to predict that for the Long Term most users will tend to install Linux (RedHat, SUSE and Oracle) and not OpenSolaris UNIX.
Storage and other Hardware
Sun is a player but not a leader in this growing market.
Java Software
Despite its technically solid and innovative products and its special position as the creator and partially owner of the platform, Sun's market share is not high.

SOA and Integration
Sun is competing with Mega Vendors like: Microsoft, IBM, and Oracle and with large vendors like Tibco and Software AG/ Web Methods. Seebeyond's CAPS (formerly SeeBeyond's ICAN) includes unique capabilities for Java based SOA implementations.
Database Management
Will MySQL continue its momentum after being acquired by Sun? I do not know.
Anyway, the market leaders are Oracle, IBM and Microsoft
Office Systems
So far Microsoft is the undisputed leader in that market. IBM Lotus is another competitor. New Google Web based Office services are also emerging.

With a large installed base and loyal customers, Sun is an innovative company which has valuable assets and could be an acquisition target for one of the Mega Vendors.

For which companies SUN is a reasonable acquisition target?
Sun could be an acquisition target for vendors that are large enough to buy it and have Business affinity with it, i.e. buying it has a value proposition for them.
In my opinion there are three vendors that are fitting to these criteria.
IBM
Possible Sun acquisition could be valuable for IBM in the following aspects:
  • Leading Java community processes and enhancing its Java market share. IBM could strengthen its position as the Java market leader.
  • Hardware market share: Servers and Storage
  • UNIX market share. By acquiring Sun IBM will become the undisputed UNIX market leader
  • Database market share. MySQL in addition to its flagship DB2, Informix and other databases
  • SOA and integration
IBM integration products line includes many products added by acquisition, some times with overlapping functionality. CAPS with its unique features could be added to this collection.
IBM is experienced in acquisitions of large companies such as FileNet and PWC.
HP
Possible Sun acquisition could be valuable for HP in the following aspects:
  • Hardware market share: Servers and Storage
  • UNIX market share. By acquiring Sun, HP will become the undisputed UNIX market leader
  • Sun's IDM may augment HP's Management product line
Extending acquired EDS outsourcing business based on Sun's platforms and products (see my post Will HP survives till 2018? – HP's EDS acquisition First Take).

HP experience in similar acquisition of Compaq (including proprietary Alpha servers and processors and proprietary Tandem servers) and operating multiple overlapping hardware products lines as well as its Intel alliance could help HP in the merging process.

HP challenges could be entering to new markets such as databases (competing with its partner Oracle?) and Java development and Runtime products (HP unsuccessful acquisition of a Java Application Server many years ago).
EMC
At first glance it seems that EMC is not a company that would acquire Sun, However EMC acquired Data General many years ago. Data General main business lines were servers (including Operating System and Infrastructure software products) and storage. The storage line was the reason for acquiring Data General.
Possible Sun acquisition could be valuable for EMC in the following aspects:
  • Storage market share and products
The Storage Tek Cartridges systems lines could complement EMC's storage solutions.
  • IDM as a Security product extending acquired RSA Security products line
  • Expanding its software portfolio (e.g. Documentum) with new software products lines.

In case of acquiring Sun, some of EMC's challenges will be as follows:
  • Should it enter into the Servers and Operating Systems market with Sun Servers and Solaris?
  • Type and level of participation in Open Source software initiatives
  • Should it develop and market a DBMS system competing with its partners Oracle and Microsoft?

EMC strategy is to expand its business beyond its traditional storage solutions.Few years I read an interview with EMC's CEO John Tucci . He talked about EMC as a potential infrastructure vendor. In case of strategy of that kind and acquisition of Sun EMC may decide to be a player in the Servers
For which companies SUN is not a reasonable acquisition target?
I will be surprised if Microsoft or Oracle will acquire Sun. Both companies are software companies and I do not think that they would expand their business to include significant hardware business.

I will be more than surprised if Google will acquire it. Google has no experience and tradition in acquisitions of that kind and its core business is not Enterprise Infrastructure solutions.
Conclusions
My prediction is that there is relatively high probability that Sun will be acquired by another company in the following 10 years.

This prediction should not influence current decisions about buying and implementing Sun's solutions.
I see no other candidates except: IBM, HP and EMC for acquiring it.

It is also possible that some of Sun's assets will be bought by other companies prior to such acquisition (DEC sold business lines to Intel CA and Cabletron before being acquired by Compaq).

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