Investors in Sun Microsystems have another reason to be concerned about the company’s direction, as Sun plans to pay the initial license fee for Oracle Enterprise Edition database software on its high-end hardware.
“Larry Ellison has his own jet. He can keep the San Jose Airport open for his late night landings. His boat is so big that it can barely get under the Golden Gate Bridge.”
— VC Guy Kawasaki makes one wonder why Sun is giving Oracle founder Ellison more cash.
Though the story from News.com discusses the deal between Sun and Oracle, IBM really serves as the main focus.
On the highest-end system available from Sun, Scott McNealy’s company writes a check to Oracle for $850,000. That’s a substantial piece of the margin to give up just to get a sale, and it demonstrates how much impact IBM had on a market where Sun once enjoyed a strong share.
Marketing firms IDC and Gartner agreed in separate reports in 2005 that IBM had gained market share in the Unix server market. Worse for Sun, the gains came at their expense.
“We’re going to effectively give you the Oracle database for free with a year of support with our new pricing model,” McNealy said at a joint news conference with Ellison. The purchaser will pay the ongoing annual support and maintenance agreements after the first year.
The price tag Sun pays to Oracle could have been much higher per system, had Oracle not adjusted its pricing schedule last year. Multi-core processors favored by Sun and other manufacturers in their servers stood to cost their owners much heftier Oracle licensing fees.
Aspects of the new partnership include efforts by the two firms to market Sun and Oracle products. Like IBM, Oracle has licensed Java for another ten-year period, further extending the time they will work with Sun.
Oracle had to make a change after both Microsoft and IBM softened their database pricing to reflect the growing multi-core market. IBM’s impact thus affected Oracle as well as Sun.
Oracle is in much better shape financially than Sun, though neither has recovered fully from the dot-com crash. Currently, shares of Sun trade for well under $5 per share, and have since 2004. Investors do not appear to have cheered the move, as the stock has fallen 15 cents per share this week as of press time.
Both companies have intertwined over the past two decades, as Sun noted in materials related to the announcement. As enterprises began developing e-commerce and other web applications, choosing Oracle databases on Sun platforms was a no-brainer for any serious web-based effort.
Open source software changed the equation dramatically. A web application that may have placed a BEA Weblogic application server online, connected to a Sun server running Oracle, could connect to a no-name piece of hardware hosting a Linux platform with MySQL or PostgreSQL doing the database work, at a substantial price savings.
The growing importance of web services may swing momentum back to Sun. Companies making bets with online applications, especially Fortune 500 firms, could be tempted to spend more on the established name for better support and accountability.
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David Utter is a staff writer for Murdok covering technology and business.
