Big Fish Spawn Consolidation: The Oracle-Sun Deal

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Oracle, one of the big five consolidators in this industry, swooped in last week and snatched Sun Microsystems from the grips of IBM in a last-minute maneuver that puts Oracle in the hardware business as well as gives it ownership of the underleveraged Java development software.

While Java may be the jewel in the rough that Oracle's Larry Ellison was after most, Sun also brings with it a respectable portion of the server market. Server share is something that Cisco, one of the other big consolidators, has set its sights on as well.

So here we go again with more consolidation in an industry that spawns new companies daily. This, of course, had some nice drama behind it, with IBM apparently willing to go only so far and Oracle having the gumption to pull it over the goal line.

So Oracle, previously a nonplayer in the blade server market, now becomes the fourth-largest supplier should the deal go through. And, of course, the wave of consolidation continues to roll.

There is little doubt that IBM, Oracle, Microsoft, HP and Cisco are far from done gobbling up weaker players and innovative start-ups in a difficult market.

In this case, there is little impact for solution providers, with neither Sun nor Oracle having much Channel DNA.

But high tech is feeling smaller all the time, and part of this move is being driven by the trend of supplying everything a customer wants, from hardware to software to services. With managed services and cloud computing gaining traction, the more a supplier can bring to the table, the easier it is to gain share in the current customer set. We all know it's easier and less expensive to get another dollar out of a current customer than it is to acquire a new one.

That's a big part of what's driving all these deals, and there is no reason to expect these buyouts to slow down anytime soon.

So we are headed toward a market where the conflict between big players who used to partner on some deals and compete on others will increasingly be competing on every deal.

Before the Sun buyout, Oracle, for instance, would partner with Sun, HP and other hardware makers, but now it finds itself in a position where it can offer a more complete package. Are HP, IBM and other hardware makers more or less likely to recommend Oracle as a result of this? In many cases, both players were already offering their own alternatives to Oracle.

So in some ways, this is a defensive play for Oracle as much as a strategic move into new areas.

The Solaris operating system and the Java programming language may be the most sought-after part of the lineup for Oracle, but increasingly the company may have been feeling the need to have a hardware answer to the increasing software competition from Oracle's old partners.

So what's next? Will Microsoft finally buy Yahoo? Is Dell likely to begin buying software players? How will Cisco continue to grow through acquisitions?

The interesting thing is that while all this consolidation is going on, there continues to be a massive amount of innovation in the market, with lots of interesting companies being formed all the time. The market may be maturing and the bigger players may want to be all things to all people but luckily, high tech -- especially software -- is something that spawns its best innovation in small companies with hungry entrepreneurs. Unfortunately, too many of them sell out to the big five.

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