An IBM Acquisition May Be Good for Sun, But it's Still Worrisome

by Sam Dean - Mar. 18, 2009Comments (2)

As Kristin noted this morning, the Wall Street Journal's report that IBM is in talks to buy Sun Microsystems doesn't make the deal a foregone conclusion, but there are a lot of reasons why it's likely to happen. Given the waiting game that Sun has been playing for its open source strategy to pay off, and how perilous that's been for the company, I agree with Kristin that an IBM acquisition may be good news for Sun. Still, Sun is one of only a few public open source companies, and if it's no longer independent, will that be negative for open source?

As lists of predictions for 2009 flew around late last year, my main prediction was that we would see more mergers and acquisitions in the open source arena this year. I also wrote a post in November about how the valuations of the public open source companies couldn't go much lower without making them acquisition targets. Since then, Red Hat has rallied mightily, nearly doubling its stock price and market capitalization, while Sun and Novell haven't found much market love.

Sun has been playing a waiting game hoping for its open source strategy to make up for big hardware losses. Some of its open source moves have started to pay off, as evidenced by the healthy 81 million dollars in MySQL billings the company reported last quarter. However, as Matt Asay noted here Sun has long been heavily dependent on financial services buyers, especially for its hardware offerings, and the financial services industry is not exactly in good shape.

Sun will definitely benefit from a rebound in the economy, and I still believe its open source strategy is a sound one, but too many negatives have stacked up for the company while it's played a waiting game. In November, I noted that Sun's market capitilization was barely above its cash position which currently sits at $2.64 billion. With the jump in its stock price today, Sun has a market cap of $5.94 billion, a much more logical valuation. Some are speculating that if IBM does acquire Sun, it might go for $7 billion.

For Sun and its shareholders, it's probably best at this point for this acquisition to take place. Still, I'm going to be disappointed if Sun loses its independence, and I won't be surprised to see IBM shift some of Sun's focus on open source offerings toward proprietary ones.

Meanwhile, for a different take, see GigaOm's post on why Cisco, not IBM, is the right suitor for Sun.


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Jesse Babson uses OStatic to support Open Source, ask and answer questions and stay informed. What about you?



2 Comments
 

This is big news. I disagree about Cisco. IBM has global services and the developer communities of these 2 sites (Sun + IBM) is huge. Both support Open Source. Both are in the traditional server and enterprise software business. Cisco is not. This is not hardware. This is the stack.


IBM ain't seen nothing as big as this since Cognos, but they are a machine.


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One open source community that will definitely benefit from an IBM acquisition of Sun is that of OpenOffice.org. Also benefiting would be the OASIS OpenDocument work based on the OpenOffice XML format specification.


The reason? IBM has very different business needs than Sun. What IBM needs from OpenOffice is a desktop suite of editors capable of replacing MSOffice, and integrating into Lotus Notes. If they don't figure out how to replace MSOffice on the client, then the juggernaut of Microsoft Web Servers (Exchange-MOSS-SQL Server), Cloud and RiA systems will continue the horrific savaging of Notes marketshare.


To pull this off, IBM will have to fix OpenOffice to fully support and natively implement a host of Open Web technologies. They will also try to chop the OOo editors into portable modules that can be easily embedded and deployed by the Eclipse community.


IBM will also fix OASIS ODF in a number of important ways- all of which must improve interoperability. Unless and until they fix much needed compatibility with legacy MSOffice bound documents and business processes, there's no hope of successfully replacing MSOffice in existing workgroups. If end users can't convert their legacy binary documents to OpenOffice ODF without breaking them in terms of fidelity and embedded business processes, those workgroups cannot make the move to OOo without unacceptable disruption and business process re-engineering costs.


An important issue here is that legacy client/server systems and business processes are moving to take advantage of highly productive Web connectivity, communications and collaboration (WC3:). While most are quick to point out that the desktop business productivity environment that made Microsoft is going to play second fiddle to the Web going forward, what they don't seem to realize is that Microsoft is pretty much in total control of this transition of business systems to a Web centric model. The desktop does get re-purposed and re-positioned. It's importance is diminished. But if Microsoft can control and direct this great transition to their proprietary WebStack-Cloud-RiA center, then not only does IBM lose, but so does the Open Web.


Hope this helps,

~ge~


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