News Analysis: Peace In Our Time?

Picture this. A lone engineer toils away in an empty lab during Sun Microsystems' July 4th shutdown. Even the halls are empty when, suddenly, he sees what appears to be Bill Gates wandering by himself along the corridors of Sun's kingdom. Classic cartoon double take. It can't be. The engineer shrugs it off and goes back to work.

Only it was Bill Gates who, unbeknownst to all but the top guys at Sun, was there to hash out what is now public: A 10-year interoperability pact between the arch-rival companies. That deal was announced early Friday by Sun CEO Scott McNealy, who related the aforementioned tale, and his Microsoft counterpart Steve Ballmer.

The two companies, long at each others throats in a decidedly public manner, have agreed to disagree on some things but pledged to ensure that their operating systems and tools work together smoothly. At the very least this public promise gives customers and VARs leverage to use if the companies backtrack.

Details remain hazy, but clearly this surprising alignment was sparked at least in part by the increasing importance of open source software, which both companies view as a mortal threat. It is also targets IBM, which has managed to parlay its support of Linux into big business. And while Sun does support Linux, most people view that support -- which came late to the Linux party -- as ambivalent.

The pact between archrivals probably also means a kinder and gentler relationship between companies whose executives regularly flung insults at each other. McNealy seemed to relish his role as the "anti-Bill" in years' past and regularly decried Microsoft software as "a hairball." This is not a compliment. Even Sun's official comments had a "so-there," tone to them. A quick tour Friday of Sun's "breaking news," section of its Website brought up -- just below its announcement extolling the Microsoft agreement -- a release reading: "Sun Microsystems Applauds EC Decision." What a difference a week makes.

Microsoft was hardly more civil. Company executives have said they don't understand how Sun can survive given its current model and situation. Sun has seen its margins eroded by low-cost hardware, especially Intel servers running Linux and --guess what-- Windows Server operating systems.

Ballmer and McNealy promised vigorous future competition but hinted they'd tone down the rhetoric. "We'll continue to compete. You'll hear from me why Windows Servers are the best and from Scott why Solaris, why Java is best. What you won't here is [the term] 'welded shut'. Customers say make these things interoperable, to play together well [and] that' what we're absolutely agreeing to agree upon."

McNealy promised (sort of) to mend his ways. "I don't predict, but I'll do my best to be good. I will be good."

"We've been shipping Intel-based computers for four to five years, as well as blade appliances both OEM and end-user [boxes] running Solaris and Linux and today we're certifying all of those products to be Windows-ready and compatible," McNealy said.

Meanwhile, software rivals seem stunned, or at least struck mute, by the news. As of late Friday afternoon, IBM Software would issue no comment. Nor would Novell, which with its purchase of SUSE is now a major Linux power. In fact, the silence was downright deafening from Oracle, PeopleSoft, SAP, Siebel and BEA Systems, as they and others on the software landscape adjust to this tectonic shift.

And while the word "astounding" hardly seems adequate to describe this particular detente, Microsoft has a history of investing in its rivals. In 2000, it invested $135 million in Corel, which offered the venerable WordPerfect Office. In 1997, it shocked the world with a $150 million stake in Apple Computer, which helped settle another lawsuit. That made another legal issue go away. Not to mention Microsoft's $750 million payout to Time Warner/America Online which promised future collaboration and, oh by the way, made a civil suit against Microsoft disappear. One can only wonder if a similar deal is being worked out with RealNetworks, which has sued Microsoft over its business practices.

Cynics might call Microsoft's latest largesse guilt money, or a way to alleviate antitrust pressures. Cynics might just be right. Even so, don't under estimate the value of Sun's portfolio of technologies and patents, which Microsoft now can access.

Channel observers were optimistic about the deal and cited its pragmatic roots. "Microsoft and Sun are making a pincer move around Linux," said Alan Weinberger, chairman and chief executive of the ASCII Group, the solution provider consortium. "This is a win-win for both Sun and Microsoft, and their partners. It's a brilliant move."

Others are skeptical. "Do we really expect Microsoft to change its ways? I don't think so," said one long-time industry watcher.

STEVEN BURKE contributed to this story.