December 2, 2004 12:29 PM PST

Microsoft and Sun's difficult dance

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news analysis Microsoft and Sun Microsystems may be going steady, but they aren't quite sure where the relationship is headed.

The companies gave an update Wednesday to their "ongoing dialogue" about product interoperability that stemmed from a far-ranging partnership announced in April.

With payments of $1.95 billion to Sun and the onstage reconciliation between Sun CEO Scott McNealy and Microsoft CEO Steve Ballmer--bitter rivals for many years--expectations for the landmark, 10-year agreement are high.

News.context

What's new:
Microsoft and Sun's much anticipated progress report on collaboration under their landmark pact revealed few surprises but highlighted the difficulty of bringing the two formerly bitter rivals together.

Bottom line:
The companies' cautious tone points to the technical and business challenges they face as they sort out where they will compete and cooperate in areas of mutual interest.

More stories about Sun and Microsoft

But in sharp contrast to the hoopla that surrounded the announcement of the deal, the companies' first progress report was tempered and tactical. Executives offered few details on future product plans beyond early next year.

That deliberate caution points to the challenges the companies face in making their partnership successful. Sun and Microsoft will still compete in key areas, such as server software and development tools. And though they're committed to a long-term partnership to iron out differences where it makes mutual sense, they still have thorny technical and business obstacles in their way.

"The real question is: Will they give each other each enough space where they can collaborate such that it's good for customers and both companies can make money?" said Christopher Lochhead, chief marketing officer at software company Mercury, which works with both Microsoft and Sun. "That's a hard thing to figure out, especially considering that they hated each other."

Microsoft and Sun said they are intentionally being conservative in setting expectations. Company executives noted some areas of potential interoperability beyond network authorization, Web services specifications and product certification, but they steered clear of grandiose claims or ambitious product plans.

"When we do have something to announce, it's going to be looked at with a lot of interest," said Andrew Layman, director of distributed systems/interoperability at Microsoft. "We want to make sure it lives up to expectations."

The companies' procedures for working together--which include scheduled executive conferences and monthly meetings between 24 engineers--are more significant than any actual product development, argued Greg Papadopoulos, Sun's chief technology officer.

"The issue here has fundamentally been around trust," he said.

Under scrutiny
Still, the companies' commitment to product interoperability is being closely watched. It represents $350 million of the $1.95 billion deal, which also settled litigation and established that neither company would sue the other on the basis of patents.

Because the legal settlement was such a large portion of the arrangement, it remains unclear how significant the product interoperability portion of the deal really is, said Michael Cherry, an analyst at research firm Directions on Microsoft.

If Microsoft and Sun end up focusing on making existing protocols work together, rather than on developing future products, the joint work

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