Commoditized Consolidation

I have written often about how the technology industry is commoditizing itself. I have also written about how consolidation is an inevitable process in every industry.

Now we see how the two work together and create what some might view as the End of Days (of course those same people had apocalyptic visions when Microsoft announced NT).

The big news of the day, week, month, and thus far the entire year is that Sun Micro (of all people) is buying MySQL for a cool billion dollars. So much for Mister Mickos growing rich slowly. This takes the world’s most popular DBMS (in terms of number of installations) and gives it a global sales and support team. Not bad for a hardware company.

(The wisdom of forfeitting 8% of Sun’s current market capitalization is suspect however — you can buy a lot of offshore programmer time for a bill)

MySQL, like Linux, is Open Source and a force for commoditization of the IT infrastructure. Vendors who waited too long to realize that their markets were being commoditized (like Sun and their UNIX servers) get clobbered. So Sun is shifting and grabbing strong players in the commodity technology business.

Sun’s CEO Jonathan Schwartz seems to understand the mechanics of commodities, something his glib predecessor McNealy did not. Schwartz recently noted:

“Exxon just reached a half a trillion dollar market cap based on a commodity. Commodities are where it’s at.”

This is a mighty switch for Sun. In the past they retreated to high-end servers and software in order to escape the forces of commoditization, and found themselves selling to fewer and fewer customers. Wealthy customers they were, but the higher up the technology curve Sun drove, the less total revenue they made.

Now Sun is submitting and planning on profiting in the volume business that is commodity technology.

“MySQL is by far the most popular platform on which modern developers are creating network services … The adoption of MySQL across the globe is nothing short of breathtaking. They are the root stock from which an enormous portion of the web economy springs.”

If I were Larry Ellison, I’d be tempted to take Scwartz’s scalp … or at least that ratty looking ponytail. Oracle is on its own buying spree in an attempt to escape the commoditization of their piece of the IT infrastructure. Oracle is buying and building applications and middleware (mainly for high-end customers), and added to their portfolio by purchasing BEA.

Anyone else see what I’m seeing?

Oracle is running away from commoditization the same way Sun once did. Sure, Oracle now owns most of the popular commercial CRM packages, but that doesn’t bother SalesForce.com or SugarCRM, who are taking different paths to commoditizing that application segment. From a recent consultation I had with Oracle’s middleware group, I know they are feeling the heat of commoditization in the developer tools category as Eclipse, JBoss, and other software take all recognizable market mind-share. Internally at Oracle, the two forces have been reconciled.

Larry Ellison makes very few mistakes, and if his charge up the stack is a mistake, it will take a few years to see cracks in his castle wall. But over a five year span, I would not bet on Oracle’s strategy.


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