Bear with me while I brag a little. Way back in 2003, as Oracle was just winding down a hostile takeover of PeopleSoft, I wrote a column that predicted two things: Oracle would buy a major IT services company (Cap Gemini was my favorite pick), and Oracle would buy Sun. Not the Sun of 2003, but the Sun that I felt was never to recover from the fallout of the dotcom bust. I would like to think I get things like this right all the time, but truth is it’s a lot easier to handicap the races than predict what the likes of Larry Ellison and Scott McNealy will do.
But I did get it right, as today’s news shows. Oracle is going to start down the journey towards beating IBM at its own game. Beating is the operative word, because at the moment IBM has no packaged enterprise software portfolio of note, whereas Oracle has amassed a major war chest of products it can offer the market. I always felt that this lack of software heft was the major reason Sun drifted meaninglessly in the market, and I think that the main flaw in IBM’s worldview is its own lack of packaged enterprise software. Because packaged software means packaged processes, and process, not bits and bytes, is what has a high value today. Sure IBM has lots of process capacity in its Global Services group, but the repeatability and margins in packaged processes are much greater, and more sustainable, than a consultancy full of best practices.
Will Sun be as strategic an investment as Oracle’s enterprise software portfolio has been so far? I think yes, though not without a large quantity of rationalization (Bob Warfield’s cynical take is that only Java and MySQL are worth a headline) . There’s a lot of reasons why Sun hasn’t done well over the last few years, and much of that has to do with a slew of non-commodity products competing in a commodity hardware world. Then there’s Sun’s historic inability to market the advantages of its platform in the enterprise software world: for years, Sun hardware was the fastest platform for SAP’s R/3, though you’d never ever hear that from Sun.
Finally, there’s that Java thing. Greatest software product never to make any money in the history of the industry. Sun’s stunning inability to monetize this brand has been its most spectacular failure, and it will be interesting to see what Ellison, Phillips and Catz can come up with. The bar is set quite low for doing better by Java, so I expect some quick upside soon.
So, as the latest Valley M&A saga unfolds, it’s nice to see that there is some method to the madness that Oracle’s M&A strategy seems at times to contain. First, buy a strong portfolio of products and a boat-load of customers. Stir vigorously. Then buy a major hardware vendor. Leverage the benefits of vertical integration and one of the strongest brands in enterprise software. Then buy a services company and take the fight to IBM in a major way.
I’ll be back in a few years to see how that last prediction has held up.