Romances between high profile celebrities never seem to last.  Might the same thing be true for alliances between giant technology businesses?  For nearly five years IBM and Oracle have enjoyed a strange and wonderful relationship.   Executives have been quite complementary of each other, have invited their counterparts to speak at each other’s major selling events, and otherwise have showed many signs of true friendship.  Oracle has declared IBM to be its Partner of the Year multiple times.

A series of recent developments have the potential to erode this special relationship:

  • The acquisition of Sun Microsystems by Oracle, after IBM made a low-ball bid to buy it, clearly got a lot of teeth grinding in Armonk.
  • By acquiring BEA, Oracle threatens IBM’s critical WebSphere franchise.
  • Competition is intensifying for Business Intelligence market share as each absorbs major acquisitions (Hyperion and Siebel for Oracle, Cognos and SPSS for IBM).

Oracle only exists because 30 years ago IBM foolishly delayed exploiting the relational database concept it invented. Larry Ellison had the vision to jump in and systematically take over that market.  It took IBM more than twenty years to get over the resulting anger, jealousy and sense of unfairness.

The acquisition of PeopleSoft early in 2005, one of IBM’s strongest ISV partners, shocked IBM into rethinking its attitude toward Oracle.  Suddenly, it made sense to at least appear friendly in front of thousands of mutual customers.  IBM swallowed its pride and sent a posse of peacemakers to Redwood Shores.  Once there, numerous common interests were uncovered:

  • IBM’s service business was making a fortune installing, supporting, enhancing and running Oracle software products.
  • Both shared a passionate belief in open standards including Linux.
  • Neither cared for Microsoft’s technological bullying.

President Charles Phillips became Oracle’s designated driver for the new friendship.  So far he has kept the relationship remarkably strong.  His task gets harder every year since both are in a race to acquire software companies as fast as they can be absorbed.  It was thus inevitable that the mutual buying binge would eventually lead to conflict.

Surprisingly, IBM did not seem to mind too much last year when Oracle grabbed BEA even though it competes strongly with WebSphere – the crown jewel of IBM’s own software business.

Then at OpenWorld 2008 Oracle introduced a database appliance built with HP hardware.  Once again IBM shrugged it off after a polite call from Phillips to IBM CEO Sam Palmisano.  It seemed like no big deal since the market niche being targeted was small.  It helped that Oracle also reaffirmed its lack of interest in selling hardware.

The wild card came earlier this year when Sun put itself up for sale.  IBM took its usual very careful look and came up with an offer that the Sun board felt it could refuse.  Days later Oracle swaggered into the saloon and put a sack of gold nuggets on the table.  IBM was surprised along with most outside observers.  Regular readers of this blog know that we saw it coming (see our April 9, 2009 post).

The big question remains: What will Oracle do with Sun (assuming it will gain approval from the European Union)?  No one outside Oracle knows but that will not stop me from making a few guesses.

The obvious strategy is for Oracle/Sun to build integrated appliances that include hardware, databases, middleware and even applications.  Oracle has already announced what is likely the first of many appliance offerings.  This represents a far greater challenge to IBM than anything Oracle has previously done.  The hardware play is not what IBM cares about – margins in hardware have become miserable.  Integrated offerings strongly challenge IBM’s middleware franchise.  More importantly, they reduce IBM’s role providing associated services and even the demand for such services.  The current era of détente will likely come to an end if integrated Oracle appliances gain significant traction in the market.

The Sun acquisition goes beyond putting Oracle into the hardware and appliance business.  Oracle now has control of both Java and the mySQL open source database – the Sun assets IBM really cared about.  This seriously diminishes IBM’s dream of providing leadership in middleware, application development and the openness movement.

Independent of the Sun acquisition, competition between IBM and Oracle in the BI market continues to intensify.  A separate series of postings will explore this fascinating and important development and its implications for the JDE community.  BI adds one more growing source of intense competition and therefore friction between Oracle and IBM.

The option of openly declaring war on Oracle as a result of all these transgressions is not available to IBM given the continuing synergy of its services business.  In any case, it is not in the nature of the key executives involved to engage in old style vitriolic attacks.  Still, it is hard to picture the Oracle/IBM relationship being as cordial as it has been recently a year from now.

Since most of you have important vendor relationships with both Oracle and IBM we will continue to follow developments as they unfold.  At the very least, they will provide some entertainment.

Please, keep those comments, questions and opposing opinions coming!

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