August 20, 1999 2:30 PM PDT

Sun buying Microsoft Office competitor

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Sun Microsystems is finalizing a deal to buy Star Division, a maker of a software suite similar to Microsoft Office, and it appears that it is off on a second attempt for desktop glory.

A deal to purchase Star Division was signed August 11, and an announcement is expected August 31, sources familiar with the plan said. Star Division makes two types of its StarOffice software, one type that runs on Linux, Solaris, Windows, and OS/2, and the other, a thin client version of the software that runs on Java-enabled devices. The purchase price for Star is unknown at present.

Assuming the deal doesn't go awry, the acquisition of the German company would put Sun into more direct competition with longtime foe Microsoft. Microsoft's office suite is dominant on computers running Windows and Mac OS, whereas Sun's strength has been not with end-user software but with server hardware and software.

The deal would also lay important groundwork for a second attempt by Sun to get back into desktop computing. On September 8, Sun is slated to unveil a new line of "thin client" desktops which are similar but more robust than its ill-fated Javastation, according to sources. Star Division's software would essentially give Sun the applications that would make these desktops more attractive and useful. Currently, Sun makes workstations but not desktop computing units intended for office workers.

StarOffice, available as a free download over the Web for personal use, includes a word processor, spreadsheet, graphics editor, desktop database, presentation program, and calendar. Sun uses StarOffice internally and in November entered into an alliance with Star Division to promote its software for the education market along with Sun's Solaris operating system.

A Sun acquisition of Star Division makes sense for Sun on two fronts, industry observers said. First, it bolsters non-Microsoft operating systems, because it puts financial and marketing muscle behind applications for alternative OSes. Second, it furthers Sun's effort to support its computing model based on powerful centralized servers accessed by stripped-down "thin clients."

Microsoft's dominance in Office software is secure at present, said Phil Rueppel, a financial analyst at Deutsche Bank Alex. Brown. "I don't think Star software is going to pose too much of an issue for the office-suite success Microsoft has had," he said. "But it does provide more and more functionality to the alternative to the Microsoft architecture."

A Sun spokesperson declined to comment on the deal. Star Division representatives did not return phone calls.

Star Division was founded in 1985 in Hamburg, Germany, but moved its headquarters to Fremont, California, in March 1998, the company said. The company had said in earlier news releases that it planned to begin selling stock publicly in 1999, but it omitted mention of that plan in more recent releases.

The thin client connection
The Star Division announcement will dovetail with Sun's rollout of its next-generation thin client, code-named Corona, expected September 8 at Sun's Enterprise Computing Forum, sources said.

The deal gives Sun software that could fill what analysts said was the biggest gap with its first attempt to promote thin clients, namely, smoothly functioning applications. In July, Sun's chief operating officer Ed Zander acknowledged that the company's first attempt at thin clients years ago wasn't good enough and said it was refreshing its effort.

"Sun has always been a proponent of server-centric computing. What has always gotten in the way...has been a lack of compatible applications," said International Data Corporation analyst Dan Kusnetzky. Kusnetzky said adding better client software could help Sun spread the thin client plan into new markets.

Thin clients are desktop computers, such as the Javastation or the "NC," that hand off storage and many computing tasks to powerful servers. Thin client computing cuts down many of the costs associated with managing large networks of computers. Nonetheless, the concept has yet to catch fire with buyers.

Another company betting on thin clients is GraphOn, which sells software that can turn ordinary office applications such as Corel WordPerfect into software that runs on a server for thin clients to access.

But after losing round one of the thin client push, Sun will have a harder sell the next time around, Rueppel said. "The popular momentum and excitement about thin clients is certainly passed. Now real benefits have to be demonstrated before customers adopt it," Rueppel said. "There's a long way to go."

The appeal of thin clients is that companies wouldn't need to spend as much on computer administrators, because such computers are centrally controlled and not very complex, Kusnetzky said. Nonetheless, that advantage has been shaved by declining PC prices and improvements in PC management over the past two years.

Will Sun keep all Star software?
The biggest question raised by the acquisition is what will happen with the Windows and Linux versions of the software.

On the one hand, Sun isn't known for advocating Windows software, although some Java and Sun-Netscape Alliance products work on Windows. On the other hand, an office suite that works the same on many different computers would be a useful feature for companies considering adding non-Windows systems into their networks.

Sun has recognized the ubiquity of Microsoft Office, offering add-in cards that let Sun computers also run Windows and its software, points out Technology Business Research analyst Joe Ferlazzo.

Linux is another question mark. While Sun and others are happy with Linux, Kusnetzky said it appears Sun is ambivalent about the upstart Unix clone.

"I'm not sure that Sun has the interests of the Linux community at heart, except to convince them that there's some level of compatibility between the Linux and Solaris community," Kusnetzky said. "My sense is sun is trying to position themselves as Linux's big brother. When you outgrow Linux, come to us, and we'll make it all work."

Rueppel says Sun seems to be of two minds about Linux. "Sun publicly endorses the open-source software model, but they still want people to purchase licenses of Solaris," Sun's Unix operating system. "The debate runs far and wide within Sun."

Department of Justice
Observers suspected Microsoft was likely to try to raise the issue to its advantage in its trial with the Justice Department.

But Rueppel didn't think the Star Division acquisition is relevant to the case. "Microsoft does have a case that there is competition, but the DOJ issue is much broader. It's about the tactics Microsoft used to allegedly stifle competition," he said.

 

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