Oracle/Sun behemoth makes customer negotiations tricky

If the deal goes through, customers must prepare to negotiate with a new IT behemoth

Oracle's acquisition of Sun has hit some European roadblocks, but if it goes through customers will have to prepare to negotiate with a new IT behemoth. With Sun on board, Oracle will have the software and hardware it needs to compete against more well-rounded companies such as IBM, and could vault up to the top of the open source industry, according to Gartner.

"Believe it or not, Oracle would become the most powerful open source vendor in the market today, bar none," analyst George Weiss told audience members at this week's Gartner Data Center Conference in Las Vegas.

The European Commission has objected to Oracle's pending acquisition of Sun, saying the combination of Oracle's database products with Sun's open source MySQL violates European competition laws. But a compromise could still be worked out allowing the completion of the acquisition.

The combination of Oracle, a software vendor with a proprietary history, with Sun, a hardware vendor with open source inclinations, raises many questions. These questions, Weiss says, including the following:

  • Will Oracle support IBM applications, such as WebSphere, on Sun's Sparc servers?
  • Will Oracle put most of its efforts into Linux or Solaris?
  • Will Oracle continue Sun's partnership with Fujitsu to design Sparc processors?
  • Will Oracle attempt to move existing database customers from IBM and HP servers to Sun's Sparc machines?
  • How much sales energy will Oracle focus on combating IBM, HP and Dell in the x86 market?

In an electronic poll of the Gartner audience, a plurality of 46 per cent took a positive view, saying they expect Oracle to bolster and develop broad new capabilities for Sun's hardware. The rest believe Oracle's approach to Sun hardware will be either to sell it off to another vendor, reduce and minimize to bare bones capabilities, or barely pay attention to the hardware product lines.

Weiss offered several pieces of advice to customers as they wait to see what happens with the pending Oracle/Sun acquisition. That advice includes:

  • Do not negotiate multimillion dollar, long-term contracts with Sun until the European review of the merger is complete.
  • Do not make a strategic long-term commitment to large Sparc servers until a long-term contract is signed between Oracle and Fujitsu.
  • Existing Sun customers should try to lock Sun into long-term maintenance deals, five years or more, before Oracle can change the terms of the deal.
  • Leverage Sun's poor x86 market share to obtain high server discounts.
  • After the Oracle/Sun deal closes, force Oracle to document its open source strategy, and how it compares with other proprietary and open source vendors.
  • Continue to use Sun's application infrastructure middleware for current projects, but postpone new commitments until a deal is done.
  • Retain Java as an open standard but expect Oracle to institute licensing changes.

Because Sun licensing and pricing could change after an acquisition, customers must be aggressive in negotiations to minimize risks. Key items to negotiate include hardware maintenance, pricing and contract periods, bundling, software support on competitive hardware, and lifetime support for Solaris.

Oracle likely didn't think winning European approval for an acquisition of Sun would be so difficult, and CEO Larry Ellison has made matters worse by acting somewhat belligerent toward European authorities, Weiss says. In the meantime, Sun is reportedly losing $100 million a month during the delay and competitors are swooping in.

"IBM and HP are all over the Sun accounts and they're attempting to instill fear into you [the customers]," Weiss says.

While Oracle has refused to compromise on MySQL, the company also hasn't walked away from the deal. While the acquisition could fall through, Weiss says the most likely scenario is that Oracle will negotiate a compromise with European officials by the deadline in late January.

If it drags out further, "everybody that has Sun systems and products is going to be languishing around that uncertainty," he says. "It's pretty untenable that this would go into a lengthier process, but it could happen."

Even the completion of the acquisition likely would not reverse Sun's revenue decline because many customers have already decided to migrate away from Sparc and Solaris, he says. Customers may also question whether they want Oracle playing an influential role guiding the open source community.

Assuming Oracle does acquire Sun, the company would obviously place more resources behind some Sun technologies and products than others. In a poll, respondents said they want Oracle to demonstrate commitment to Solaris and the independence of Java.

Although Oracle has seemed to place more importance on Linux than Solaris, Weiss predicts that the company will be agnostic on the question of which operating system customers use.

Among Sun's hardware, the products with the best chance of long-term survival under Oracle are high-end servers running data warehousing and online transactional processing applications, followed by Sparc Enterprise M-series servers, Weiss says.

Storage products and x86 servers won't be jettisoned, but will not receive the same level of support from Oracle, he predicts.

Sun middleware such as the GlassFish Enterprise Server should have a bright future under Oracle, Weiss says. But certain other software products, such as the Java Composite Application Platform Suite, will probably be supported with only minimal enhancement, he says.

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