An IBM–Sun Microsystems merger would certainly not be all about storage. Or servers. Or cloud computing. Or any other one particular area of IT.
These two Gigantors are far too broad-based for this potential unification to be pinned on any one technology. However, a merger would certainly be about sales and marketing of all of the above.
When it comes to technology, Sun has the goods: the MySQL database, a good hold on the open-source community, the ultrafast ZFS (Zettabyte File System) for storage, the huge Java franchise, StorageTek disk and tape storage, high-performance servers, some promising solid-state disk storage products, and all that groundbreaking cloud storage software. And that’s just the top of it all.
To be clear, IBM has plenty of good technology, too. But it is in marketing, sales and services that IBM holds the clear advantage-very important business ingredients that Sun has lacked for a long, long time.
IBM Global Services’ well-oiled organization runs rings around Sun’s services group, as it does around just about every competitor’s, except perhaps Hewlett-Packard’s. Sheer size and reputation have always been the major factors here.
From a business perspective, such a deal looks promising at this early date. Investors at both companies should be excited. Sun’s stock was up nearly 80 percent to $9 on March 18, and you can bet it will continue to gain value as these talks intensify. IBM’s stock was down a tad, but so what? It’s sitting pretty at $91.
In terms of products, there are good fits and big overlaps. Our esteemed eWEEK Labs and some of my other colleagues, including Jeff Burt and Jeff Cogswell, have examined all the pieces closely. There’s no question that a combined IBM-Sun entity would be an incredibly formidable competitor for all other systems companies.
IBM Holds All the Sales, Marketing Cards
The key to it all might be this: IBM might be able to sell Sun’s products better than Sun can.
When asked if he thought that statement were true, Yankee Group analyst Zeus Kerravala concurred. “IBM’s professional services absolutely should be able to sell Sun’s stuff,” Kerravala told eWEEK. “Right now, even, they can probably sell Sun better than Sun can.”
To be fair, Sun’s oft-beleaguered marketing folks have had to take a lot of guff over the years. They’ve had a much tougher job than most, because many of Sun’s innovative and important technologies have been extremely tough to monetize.
Java is the biggest example, along with OpenOffice.org, and all the other open-source products in its catalog. If Java could have brought Sun, say, $5 billion to $10 billion per year in extra revenue since it was launched in 1995, Sun would be in a much better financial position today.
“In the same way Java provides Sun some influence in markets it simply hasn’t been able to take advantage of, it offers that influence to IBM now,” Pund-IT Principal Analyst Charles King told eWEEK.
IBM has done a better job in selling services related to Linux and other open-source technologies, King said. “Whether or not they can figure out how to monetize Java, I don’t know. It’s certainly within the realm of possibility,” he said.
Cisco Systems already has shown its cards with the launch of its UCS (Unified Computing System), Kerravala said.
“Acquiring Sun would allow IBM to combine Sun’s VDI [Virtual Desktop Infrastructure] technology with IBM’s strength in servers, storage and professional services, helping them further the vision of what the ‘IBM data center’ would look like,” Kerravala said.
“As we predicted in our [Yankee Group’s] ‘Introducing Anywhere IT’ report, this transformation will reshape the vendor landscape. We expect to see further consolidation with vendors such as Rackable [Systems], Mellanox [Technologies], Brocade and QLogic being logical acquisition candidates as the larger data center vendors jockey for position in the data center,” he said.
Merger: Potentially the Best Outcome for Sun?
For Sun, a potential merger is the best outcome that management and shareholders could ask for, Enterprise Strategy Group analyst Brian Babineau told eWEEK.
“They have been trying to transition their business from a hardware-centric model to an open-source software [model]-a difficult task given the economic times,” Babineau said. “They are continuously reacting to market conditions with layoffs and other expense control items while trying to turn the ship. While they have had some success in building out some of their open storage platforms, the revenue is not material enough to spur growth to create enough shareholder value.”
One option that no one is discussing, Babineau said, is the possibility of a “carve-out” in which IBM would buy a portion of Sun, and the balance of the company-most likely the software portion-would remain as a smaller entity.
“This would allow Sun to execute its strategy without the burden of the hardware legacy,” Babineau said.
Veteran analyst David Hill of the Mesabi Group concurred.
“The proposed acquisition would be a blessing for all concerned,” Hill told eWEEK. “The Sun sunset would be bright without having to go through the blackness of a possible bankruptcy.
“IBM, with its size and experience, is one of only a few companies that could absorb the disparate parts of Sun. So Sun stockholders and employees benefit, but so do Sun customers as well. IBM benefits as it gains the IP [intellectual property] and customer base and strengthens its competitive position. Moreover, the whole IT community benefits, as Sun has been a major contributor to IT innovation and it would be a shame if all its ongoing good work were to die.”
Finally, it hasn’t been a good week for HP and Dell and the Japanese systems makers such as Hitachi, Fujitsu and NEC.
On March 16, networking king of the hill Cisco Systems announced its move into the data center systems business; two days later, IBM and Sun are talking about becoming family.
The IT business world certainly doesn’t become easier-or simpler-every day.