Games Vendors Play

With their agreement, at least in principle, to cooperate on technology integration, Microsoft and Sun have correctly identified the core issue that has allowed IBM and BEA to deposition Microsoft and marginalize Sun.

Both companies, despite their billions of dollars in revenue, are no longer the thought leaders in the enterprise that they once aspired to be. Sun's financial viability, along with its ability to compete against rival Linux offerings, is being questioned daily. Microsoft, meanwhile, for all intents and purposes remains confined to the desktop and small server environments.

That's because both IBM and BEA have successfully positioned themselves as the natural bridge between Unix and Windows. They have done this by essentially taking higher- level system services in the operating system and packaging them on top of an application server that sits on top of both Sun and Windows. As a result, the OS offerings from Sun and Microsoft are becoming viewed as commodities as IBM and BEA go on to claim positions in the higher-value, more-profitable elements of the software stack.

Ownership of the higher levels of the software stack positions IBM and BEA as more strategic vendor partners. That's because solution providers derive more services profit from that end of the stack than from the base-level OS.

BEA, in particular, has benefited handsomely as it closes in on $1 billion in annual revenue. And while IBM still has a number of software issues to surmount in terms of reaching the broad market, its ability to ally with Sun on Java and Microsoft on XML Web services has allowed IBM to position itself to customers as a slightly disinterested party that happens to gain a lot of services and product revenue because of the disconnect between Microsoft and Sun.

Sun and Microsoft obviously have a long way to go before they can effectively counter the positions that IBM and BEA have achieved at their expense. But by agreeing to sheathe their marketing knives, they will at least now have the time to understand the extent to which they have both been played for the past five years.

What does the Sun-Microsoft deal mean to you? I can be reached at (516) 562-7477 or via e-mail at [email protected].