Oracle's Four Biggest Challenges In Making The Sun Acquisition Work

With Thursday's stamp of approval from the European Union, Oracle's nine-month effort to acquire Sun Microsystems for $7.4 billion is nearly a done deal (Approval from authorities in Russian and China are still in the works).

But now comes the hard part: Merging the operations of an $11 billion hardware and software vendor with those of a $23 billion software giant. It's the old changing-a-tire-at-60-MPH dilemma, and Oracle has its work cut out for it.

Here's a look at Oracle's four biggest challenges in the weeks and months ahead:

1. Stop the Bleeding

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Last September, Oracle CEO Larry Ellison commented that Sun was losing $100 million every month that the planned acquisition was delayed. VARs and distributors said customers were holding off purchasing Sun servers because of uncertainty about what Sun products Oracle might discontinue and which ones would survive post-acquisition. Sales in Sun's first fiscal quarter, ended Sept. 27, were down 33 percent from the same period just one year before.

One step to resolving this problem is quickly communicating in great detail which products Oracle intends to continue and which ones, if any, will be phased out. Ellison has promised to continue " and even increase " investments in developing Sun's Sparc hardware, Solaris operating system, the Java development platform and the open-source MySQL database. But Ellison also has said Oracle will focus on the "high-value, high-performance" computer market and has no desire to compete against Dell and Hewlett-Packard in the commodity server market. That leaves open the possibility that some low-end server and storage products could be jettisoned.

Oracle has scheduled a five-hour Webcast for next Wednesday where it promises to provide product roadmaps for the combined companies. This must be a very detailed briefing that goes beyond marketing hype and doesn't gloss over plans to discontinue any products -- and eliminate the staff that supports them -- that don't fit the long-term strategy.

2. Convince Customers And Partners Oracle Is Serious About Hardware

While the acquisition has dragged on, rumors have periodically surfaced that Oracle intends to sell off Sun's hardware operations to another company -- Fujitsu is the name that pops up most frequently -- while Sun's Solaris operating system, MySQL database, Java development platform and other software products are the real prizes.

This problem goes hand-in-hand with the issue of Sun's financial hemorrhaging. And so does the solution. Currently Oracle's only hardware products are the Exadata Database Machine, jointly developed with Sun using that company's Flashfire technology, and the Oracle Exadata Storage Server that the database machine is built on.

While Ellison and other Oracle executives have talked about combining Sun hardware and Oracle software to create plug-and-play appliances, it's time to provide specifics about the hardware/software combinations Oracle will develop and sell. It's been holding up the Exadata system as a model -- that's a good start.

NEXT: Can Oracle Champion The Open-Source Cause?

3. Convince The World It Can Be A Steward Of Open-Source Software

True, Oracle does own and sell/give away some open-source products, such as the Berkeley DB database and the Innobase transactional storage engine. But as former Forrester analyst Ray Wong wrote in a report shortly after the acquisition was announced, buying Sun will make Oracle the guardian of some of the open-source industry's crown jewels, including the popular MySQL database, the Solaris operating system and the Java development platform.

It's no secret Oracle is a very competitive company that, from a marketing and sales standpoint, doesn't hesitate to play hardball with competitors such as IBM and SAP. The question is whether Oracle can resist leveraging those open-source technologies for competitive advantage, should the opportunity arise. Can it resist the dark side and use its new powers only for good?

4. Managing the Nuts And Bolts Of Integrating Two Big IT Vendors

Oracle faces the task of integrating Sun and its various hardware and software organizations into its own operations, all while maintaining Oracle's high operating margins. Merging an $11 billion company with a $23 billion company is going to mean lots of territory battles and bruised egos among managers and executives, and uncertainty and morale issues among workers.

It won't be easy. Fortunately for Oracle, whose mega-acquisitions in the last five years have included PeopleSoft, Siebel Systems and BEA Systems, it has developed lots of experience in melding the operations of acquired companies with its own. Many observers expected culture clashes and other tribulations when the PeopleSoft deal went through. And yet somehow Oracle pulled it off. Can the company do it yet again?