Oracle announces a $7.4B deal for SUN just a few weeks after the IBM
deal fell through.  Oracle now controls a significant major open source
alternative and a nice piece of the high end computing business.  These
open source components have been viewed as the alternative to the
dominance of the Big 4 or MISO (Microsoft, IBM, SAP, and Oracle).  
Oracle also gains an innovation engine with the assets of Sun's Labs
groups which pioneers a series of innovations that include potential
enterprise solutions for the virtual world.  The deal puts Oracle on a
continued path to acquiring deeper components of the enterprise
computing stack.  Here's how the stack looks:

  • Middleware – While Java and Solaris may appear to be the
    crown jewels in the deal, Oracle has managed to slowly buy out other
    stack competitors (i.e. BEA and now Sun) and integrate them into the
    Fusion Middleware suite of tools for custom development and its own
    Fusion Applications product lines.   Sun complements BEA.
  • Database – Oracle takes out the low cost competitor to SQL
    server on the low end and gets a shot at converting them to Oracle DB
    instead of IBM.
  • Hardware – Oracle gains another great recurring revenue
    (maintenance) base with Solaris.  This complements Oracle's large and
    profitable database installations on Solaris that would have fallen
    prey to the IBM DB2 team.

The bottom line- Oracle succeeds at post merger integration where others often fail

Despite skepticism, Oracle has made these acquisitions work from a
financial perspective, with year-over-year quarterly profit growth that
has generally been well above 20%. Some key success factors include:

  • Acquiring companies for the recurring revenue. Oracle's
    first set of deals (i.e., PeopleSoft and Siebel) focused on installed
    base acquisitions that provided a strong foundation of support and
    maintenance customers. This base of recurring revenues provided Oracle
    with the room to continue strong R&D investment while reducing
    overall costs.  Oracle takes out another highly profitable maintenance
    base adding pressure to competitors.  In this acquisition it gains the
    profitable Solaris revenue stream while moving into a maintenance
    business for open source software.
  • Eating its own dog food. In the late 1990s, Oracle made a
    major commitment to re-engineering its back-office processes using its
    own applications. As a result, Oracle has become highly efficient, with
    a ratio of general and administrative expenses to revenues of 3% to 4%
    – in most calendar quarters, one percentage point lower than SAP's and
    even lower than other large software vendors like Microsoft and
    Symantec.  Expect Oracle to put the Sun assets into its arsenal of
    tools for delivering software innovation.
  • Mastering post-merger integration. With two former
    investment bankers at the helm, Oracle has one of the best post-merger
    integration teams in the business. Oracle's profit performance signals
    that it has been able to add new companies and their stream of revenues
    while keeping costs down.   Sun will provide considerable synergies in
    the short and long run.

Your POV

What do you think abou the acquisition of SUN?  Did you count on SUN
as your open source stack alternative to the Big 4? Send me a private
email to rwang0 at gmail dot com.  Posts are preferred!   Thanks and
looking forward to your POV!

Copyright © 2009 R Wang. All rights reserved.

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