Sun Microsystems’ CEO, Jonathan Schwartz, is on the way out, according to John Paczkowski of AllThingsD. This comes just before this Wednesday’s announcement of Oracle’s master plan for its newly acquired Silicon Valley fiefdom. As the impending takeover begins to look less like an acquisition and more like an annexation,what does it mean for the State of the Tech World?
The answer: The Oracle-Sun marriage no longer looks anything like the old-style ways in integrating industry. Instead, it’s part of the growing trend of tech and telecom companies abandoning the traditional strategy of commoditizing their complements — and just buying the companies that produce their complements outright.
If you slept through microecon, and/or never played Capitalism, here’s a primer. Traditionally, companies — especially companies in tech and telecom — have tried to drive down the cost of products that are naturally linked to the products they manufacture. Let’s say that french fries and ketchup are complements, because people tend to consume them together; if the price of ketchup falls, people will be willing to pay more for fries. Easy, right?
Companies in technology try to make the same thing happen. When 80s-era Microsoft established itself as the leading maker of operating systems, it got ahold of the PC hardware standard and drove the price of individual machines through the floor. With Sun Microsystems primarily in the business of, as Joel Spolsky memorably put it, “making boxen,” it realized it had to commoditize the software that made its hardware useful.
While the company had been trying to do just that for more or less forever, Schwartz’s tenure was (hat tip to Paczkowski for noting the trend) marked by an even more aggressive push by buying MySQL and open-sourcing Java and Solaris. But that didn’t work very, well, did it? Does it say anything that there are fewer people viewing our sister site Mediaite on OpenSolaris than on the PlayStation Portable?
Of course, market leaders are gradually realizing that hazy, indirect schemes to drive down the price of complements aren’t as effective as just going ahead and buying the competition outright and managing them to keep complete control of the relationship between complements…and maximize profits across the entire parent company. Maybe you can drive down the price of phones, laptops, and broswers that lead to more Internet searches if you’re Google, but if you’re Comcast, you might as well go ahead and buy the network whose programming runs through your pipes. The conglomerates of the 1960’s were sprawling organizations that arose primarily from the intersection of tax policies and interest rates. In contrast, the tech Great Powers of the next few decades may bear a distinct resemblance to United Fruit.
While it’s true mySQL is now everywhere, there are still billions of dollars to be made in in Oracle’s central business: selling proprietary software packages to (clueless) enterprise customers. And with the departure of Schwartz and the impending subjugation of Sun, tech companies can forget about vertical or horizontal integration — Oracle is already playing three-dimensional chess.
