IBM's Revenge on Sun and Microsoft's Brush with Reality

Thursday Jun 18th 2009 by Rob Enderle
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Could IBM be the biggest beneficiary of Oracle’s acquisition of Sun? Plus: a poor review for Microsoft’s Web-based reality TV show.

There are a couple of things I think are interesting this week. The first is watching Sun pass into history and weighing which company seems to be the biggest beneficiary. The second is that Microsoft is experimenting with a reality TV program using Jack and Suzie Welch which, while interesting as a concept, seems to have too much reality and not enough entertainment value. It makes me wonder if the Welchs should have taken on the Sun merger problem for Oracle.

Sun and Ugly Mergers

Unlike most companies that are doing or planning mergers at the moment, Oracle is an expert at doing them well.

However, this merger is not an acquisition of a company like PeopleSoft that is close to Oracle's core competence. It’s the acquisition of Sun, a company that got caught in a transition between hardware and software, was clearly failing, and isn't close at all to Oracle's core competence.

That means while it may go better than AT&Ts acquisition of NCR, or IBM's acquisition of ROLM, it will have more similarities to the problems associated to those out-of-competence zone acquisitions than Oracle's typical work.

This kind of acquisition virtually never goes well despite the competence of the acquiring company, because there is simply too little understanding of the differences between the two entities. In watching mergers like this over the last several decades I've concluded that the problems are associated more with the similarities than the differences. That’s because they create a false sense of confidence that the problems are known when they are not – and the learning on the job costs kill the effort.

This doesn't mean that Oracle won't get at least some of the promised benefit from their acquisition of Solaris, Java and the related tools and support structures. These should enhance Oracle's offerings though, as a platform vendor with Unbreakable Linux, their performance has been below lackluster, suggesting that even here it will not meet expectations.

In a good merger you want to see strong competencies in the related areas from the acquiring firm or their lack of competence is very likely to break what otherwise might be working reasonably well in the acquired firm.

Of course, given Sun's financial performance, it’s a stretch to say they were executing well, particularly with Solaris, and Java really hasn't been much of a financial engine for the firm even though it is well regarded and widely used.

This creates a problem for Sun customers. They know that Solaris is not a platform that is likely to be around long and that they will be pushed onto a platform, Unbreakable Linux, which they haven't seemed to want up until now.

Many are not currently big Oracle customers either and, from their perspective, for good reason.

So where are they going?

Is IBM the Major Beneficiary?

The big problem is hardware as, anecdotally, it appears the Sun customers know they are on a bubble. Investing in additional Sun hardware would be very difficult to justify if, as expected, Oracle either abandons it or finds a buyer that is not acceptable to these Sun customers.

Sun's class of product sells to a relatively conservative market, at least on the server side. Even aggressive discounting doesn't seem to be eliminating much of the related concerns. Even x86 Workstations, which you would think would be the least risky, appear to be under heavy pressure. They seem to have dropped into the same bucket with white box systems because of concerns surrounding the continuance of the Sun brand.

What I think is interesting about this is that for most of the 90s Sun preyed on IBM accounts and bragged about how easily they bagged IBM customers. It appears that IBM is now going after Sun accounts with a vengeance using aggressive programs, targeted services, and focused partners and sales representatives.

The result, and this is all anecdotal at the moment, is that it appears that IBM may be capturing much of the business that is resulting from this merger and that has a Karmic element to it.

The reasons may be kind of interesting.

Next Page: Why IBM?

Why IBM?

For many of these accounts, even though Sun came in, IBM remained and consistently supported the aging IBM hardware.

This consistency in the face of what is clearly a big surprise, coupled with an already existing and stable relationship, seems to be resulting in IBM being favored in the majority of competitive migrations. Those old mainframes and AS400 mid-range computers are paying a surprising late dividend in bringing customers back to the IBM fold.

Certainly IBM's laser-like focus on the segment is helping it, and IBM has been executing very well of late in a number of notable areas.

For instance, they are also more focused than any vendor I cover on the Stimulus Package funding in the US. The company has set up facilities and efforts specifically targeted that funding source more aggressively than any other competitor.

As a result they are likely to achieve the greatest benefit from this as well. Their company valuation is projected by some to rise sharply as a result, suggesting that even the very conservative financial analysts are becoming excited about IBM's efforts.

This will be a great case study for someone both in terms of the merger and in terms of the IBM response. Something that, say, Jack Welch, the legendary head of GE might find interesting.

Too Much Reality for Microsoft

Microsoft is doing a reality TV program that is interesting both for what it does well and what it does poorly.

The page layout, somewhat subtle roll of Microsoft messages, and idea are actually kind of interesting. I think they are on to something here, but what doesn't work is the programming content, which isn't really very interesting despite some very good cutting of the material.

In the end a program has to live or die on the content and the content in this first effort isn't exciting, funny, or compelling enough to hold an audience.

The Web-based program is called Everybody's Business and Jack Welch is the star much like Donald Trump is the star of the Apprentice. Unlike Apprentice the show uses a real case, in this instance Hertz, and that goes to the core of what I think the problem is.

There is too much reality. Typical meetings are rarely like they are in the Apprentice and folks who have to sit through real meetings don't really like to watch similar events on TV (most of us would like to avoid the ones we do have to attend).

There can be heated exchanges but if you only focus on those you lose the context of everything else. And instead of becoming more interesting it simply becomes louder.

So, while I think this initial effort was a failure, I do think they have the beginnings of an interesting idea here. Properly fleshed out this could become an Internet property like "The Office" or "The Apprentice" which is both entertaining and can be used as a marketing vehicle.

Although I pondered both the Sun acquisition and this program together, I did kind of wonder how Jack Welch would have advised Oracle on how to do the Sun acquisition or whether he would have recommended Oracle do it in the first place.

In watching him on the program, I'm thinking he would have suggested Oracle spend its money on something else. This suggests a different kind of program, something more along the lines of a game show titled "What Would Jack Welch Do?" I might watch that one.

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