Oracle buys Sun: The big picture

One of the favorite water-cooler games of the enterprise computing set over the past month or so has been, "Whither Sun Microsystems?" Now the first phase of that game is over. The answer, as of this morning, is: Oracle--subject to the usual approvals, of course.

But the next phase of the the game is just beginning.

It's obviously very early in the process but here are a few initial reactions:

At first blush, this acquisition may seem odd. Oracle is a software company. Sun tends to be viewed as a hardware company. Why would Oracle CEO Larry Ellison want to get into the hardware business? That's the standard "Huh???" about this purchase. But this misses a number of important points.

Sun is not a hardware company. It is a systems company. And, in fact, Sun has steadily ramped up its software business in recent years. Sun Solaris and Java were instrumental in Oracle's decision to acquire Sun. So this isn't really a software company buying a hardware one.

To get the bigger picture here you have to view it in the context of what's going on within the system vendor landscape more broadly. At the risk of overstating things, the system vendor landscape is being reconstituted into big, highly integrated companies that can do it all.

This is how essentially all computer companies used to be, but that way of business gave way to the horizontal industry structure epitomized by the likes of Microsoft and Intel.

Oracle has poked at this sort of thing before. Unbreakable Linux and in-house virtualization work were early efforts. But the purchase of Sun lets Oracle take this to the next level. Consider these sound bites from the press conference: "Tightly integrate the Oracle database to some of the unique high-end features of Solaris," Sun's operating system; "for the first time deliver complete integrated computer systems, applications to disk;" and deliver "complete industry-in-a-box."

This is not to say that Oracle may not divest or shutter segments of Sun's portfolio that don't post the right kind of financial return. But this looks to me like a very serious play to vertically integrate. With their applications portfolio, it's actually a more vertical integration than even IBM offers directly, for the most part. (IBM does have some industry-specific solutions but not at the same scale as Oracle Financials and Manufacturing.)

If there were any doubt that the pendulum is in full swing back to large, integrated systems companies, this should erase it. We had IBM and Hewlett-Packard (most recently with its EDS acquisition). Now we have Oracle. And Cisco Systems is easing over that way.