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IBM-Sun Rivalry May Finally Reach An Accord 2

One of the main reasons IBM is willing to pay a premium for Sun is that Sun owns Java, and Java IP is worth billions in future revenue to IBM.
Another software issue would be what to do with Solaris. Solaris would bring into the IBM camp a host of financial services and telecom companies that Sun succeeded in capturing. And there's no technical reason why Solaris, if it can be ported to the x86 instruction set, couldn't be ported to IBM's Power architecture. Power chips need more customers, and Sun's Sparc processor customer base would be one place to find them.

IBM would probably be able to keep Solaris as open source code without offending members of the Solaris community. It's honed its skills at dealing with open source communities to keep conflicts to a minimum.

But IBM's oft-praised early support of open source code sometimes overlooks the fact that it fits open source into its long-term business plans. It has selectively supported projects, and oftentimes its support was based on not only respect for the timeliness of an emerging piece of open source code but also the fact that it might undermine a competitor. Its early support for Linux helped Linux nibble away at Sun's customer base and undermined Sun as a Unix competitor.

Coming out of manufacturing workstations, Sun occupied the low end of the Unix market and broadened it aggressively with its Solaris operating system. Linux started competing directly for the same users, as x86 PCs took on more workstation characteristics. For many years, former Sun CEO Scott McNealy couldn't refer to Linux without making a derogatory or at least conflicted remark. It took a change in CEOs to the more open source-minded Jonathan Schwartz to make peace with Linux and adopt open source code as a long-term trend that Sun might profit from as well. If IBM acquires Sun, observers may one day conclude that the transition occurred too late.

One thing is clear: If IBM buys Sun, Sun's somewhat-scattergun open source strategy will be tied more closely to a specific business plan. IBM supported Apache and bundled it with its proprietary products when it saw it might best Microsoft's IIS. Apache did. But when JBoss got a little too big for comfort as a free Java application server, IBM breathed new life into Geronimo, a Java application server project founded by JBoss breakaway developers. Today, Geronimo is offered as WebSphere Express, a free product meant to attract independent developers into the IBM software stack.

If Sun's open source strategy isn't working under downturn conditions, why is IBM willing to pay the reported $6.5 billion, or 100% more than its closing price before word of negotiations leaked out?

The stock market had been valuing Sun at a total capitalization roughly equal to the amount of cash and cash assets that it had on hand. That was the market's vote of no confidence in Sun's ability to make it through a harsh recession. IBM is nevertheless willing to pay more than what Sun is theoretically worth because without speculative support, Sun's stock could sink even lower. What if it uses up its cash reserves and starts reporting a string of losing quarters again?

At the rate its stock was going down, Sun was going to be available at fire-sale prices if somebody didn't do something.

What if Microsoft showed up at the fire sale and Java IP disappeared at a bargain price behind the walls in Redmond, Wash.? Perhaps just as bad, what if the company most adept at competing with IBM in consulting services, Hewlett-Packard with its EDS acquisition, showed up and acquired Java IP and Sun's software? Would HP CEO Marc Hurd and EDS know how to play that hand?

IBM doesn't want to find out. It doesn't mind paying a little more to keep these competitors out of the bidding, if it gets a lockdown of Java technology.


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