Global CIO: Oracle-Sun A Bad Deal? Only A Fool Would Say That

Lost in the melodrama of the EU's dithering over Oracle's acquisition of Sun is the original issue: will the addition of Sun's technologies, products, people, customers, and culture make Oracle more successful? Will Sun be worth every penny of its $7.4 billion price tag, or will it be a strategic error that Oracle CEO Larry Ellison will come to regret?

Over at the usually insightful MotleyFool.com stock-picking site, the prediction is that Ellison has made a huge blunder that was a lousy idea up front, is an awful pursuit right now, and will be a strategic disaster if it is consummated:

"No, the Sun deal is simply bad business," writes MotleyFool's Anders Bylund. "Oracle knows little about hardware, which is what Sun is good at. This deal positions Oracle closer to IBM and Hewlett-Packard as an all-around provider of everything, and I suppose there might be some synergies in there somewhere. But mashing together two very different corporate cultures often spells disaster, and when you sell everything including the kitchen sink to your customers, you end up competing with old partners like HP and Dell."

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I have four serious disagreements with this analysis: (1) that Oracle doesn't know anything about hardware; (2) the culture clash will wreck the combination; (3) the assertion that Oracle will be in no-man's land as an "all-around provider" like those slackers at IBM and HP: and (4) that IT vendors can't compete with each other. Let's take a look at each of those four issues.

So, Oracle doesn't know anything about hardware? Anders, pardon my reach, but that just doesn't make any sense. Sure, I agree that Oracle has never developed its own hardware, but it seems to me that a company like Oracle that conceives, develops, markets, sells, supports, and enhances some of the most complex enterprise software on the face of the Earth must know at least a little bit about that hardware stuff that its software is supposed to run on, right?

Look at it this way: Oracle's databases, middleware, and applications run on hardware from IBM, Hewlett-Packard, Dell, Sun, Fujitsu, Lenovo, Cisco, Acer, and many other hardware providers—do the elves make that happen, or does Oracle collaborate with and know a few things about all those various types of hardware?

Oracle's software runs on systems using Unix, Linux, and Windows—but "Oracle knows little about hardware?"

Maybe Anders meant that Oracle doesn't know anything about making and selling hardware, so it shouldn't buy a company that has done so for more than 25 years. But by that logic, Cisco shouldn't have expanded its empire outside of networking by buying security companies, video companies, and flip-cam companies. And IBM shouldn't have bought PwC, Dell shouldn't be trying to buy Perot Systems, HP shouldn't have bought EDS, and Google shouldn't buy anything but search engines and ad-serving companies.

So no, I'm not buying that one.

In fact, Ellison has articulated quite clearly and extensively his vision of how an end-to-end enterprise "systems" company can create optimized configurations for databases, transaction-processing systems, airline-reservation systems, banking systems, and other highly sophisticated functions.

As Ellison himself put it in a public interview at the Churchill Club a few months ago on the benefits of merging hardware and software:

" We are not going into the hardware business. We have no interest (shrugs) in the hardware business. We have a deep interest in the systems business. Let me tell you about the great systems companies: Cisco's a great systems company. They ship a hardware/software combination that allows them to be instrumental in the acceleration of the Internet.

"And we think by combining our software with hardware, that we can deliver systems that can be the backbone of most enterprises in America and around the world. So it's really the combination of the two: we have no interest in competing with Dell, and the plain old running Windows on x86's or HP with running Windows on x86's. We're very interested in running airline-reservation systems, and we're very interested in running banking systems, and telecommunications systems, and that requires both hardware and software."

To me, that hits at the heart of what more and more CIOs are looking for these days, which is this: CIOs want seamless, flexible, optimized systems that require less and less customization and extensive configurations and reconfigurations provided by multiple vendors with multiple throats to choke. So IF Ellison can keep the great technologists and engineers at Sun happy, motivated, and focused, this integration will be a big winner.

Can Ellison achieve that cultural integration? Bylund says companies with different cultures often clash during and particularly after an acquisition. But is there a company this side of Cisco with more expertise and proven processes for integrating and assimilating newly acquired companies than Oracle?

And in the specific case of Sun, Ellison has fought for—publicly and unflinchingly and with a very open checkbook—Sun and its vision and its employees and the technologies they've created. Is there no goodwill that will follow from that? Or are we to believe that Sun's technologists and engineers and developers and marketers are so wildly different from those at Oracle that the Sun folks would prefer to die a long and slow and miserable death by starvation rather than become part of a hugely profitable and aggressive global powerhouse with a deep desire to do great things?

I'm sorry, but what the hell kind of culture would clash with that? And if that's what Bylund is saying—that the Sun culture spurns profits, spurns aggressive competition, spurns ambitious vision, and spurns a lifeboat when it's drowning—then if that is indeed the case, then yeah, I agree with Bylund. But I don't buy that that's the case—it's nonsense.

And then, when describing the neighbors in the neighborhood Sun will live in should the deal go through, Bylund must have been daydreaming. Here's what he said:

"This deal positions Oracle closer to IBM and Hewlett-Packard as an all-around provider of everything, and I suppose there might be some synergies in there somewhere. But mashing together two very different corporate cultures often spells disaster, and when you sell everything including the kitchen sink to your customers, you end up competing with old partners like HP and Dell."

From that, two critical points to consider: first, ending up in a position akin to that of IBM and HP, and second, the prospect of competing with partners.

I might be hallucinating, but I'm pretty sure IBM's stock price is bumping up against its 52-week high recently—and it's hitting those high notes because IBM has been phenomenally successful with its strategy of being "an all-around provider" wherein "all-around" for IBM is defined as products and services that provide value to customers and attractive profits to IBM.

But Bylund seems to be saying that the position of "all-around provider" like IBM and HP is a losing proposition. Yet HP, on its way to becoming the largest IT company in the world, has embraced that position and CEO Mark Hurd intends to pursue it even more aggressively going forward. So I'm not sure what Bylund's point was there—damning with faint praise?

On the supposed danger of competing with partners: I know Bylund's a sharp guy and knows the tech business well, so it can't possibly be a surprise to him that all of the top IT companies compete with each other. All of them. Nevertheless, HP CEO Hurd and Ellison both say their companies have great relationships with each other and look forward to focusing on the many ways in which they collaborate as opposed to the few ways in which they compete.

And HP has a vast spectrum of hardware products, while Sun's is less broad but more specialized and in some cases very highly sophisticated—and Ellison wants to leverage that power and expertise with what he calls "hardware-optimized software." If anyone doubts the notion that every big partner competes with each other, check out this column: Global CIO: Upheaval In The IT Industry: The End Of The World As We Knew It.

Standing still—sticking strictly to what you already know—is not a winning strategy in today's rapidly changing IT industry where the prime value is not what stuff you have in the lab but rather what you can do for your customers right here and right now. In acquiring Sun, Oracle will dramatically enhance its ability to give customers what they want and need, rather than just try to sell to them what it happens to have on the shelf. And if that's a Pyrrhic victory, then I'd sure like to know what a strategic victory is.

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