On April 2, Microsoft and Sun Microsystems convened a last-minute press conference to announce what some observers must have thought was a belated April Fools joke. The IT archrivals declared that they were dropping all antitrust and patent violation lawsuits against each other and entering into a broad agreement to improve the interoperability between their products. If both vendors live up to the agreement, they could dramatically change the competitive landscape of the IT industry.
In a scene that seemed as unimaginable as Ariel Sharon and Yasser Arafat exchanging friendship rings, Sun CEO Scott McNealy and Microsoft CEO Steve Ballmer told a stunned audience that they had been negotiating the settlement for almost a year. The pact, which the two men had signed just a few hours earlier, includes the following agreements:
- Microsoft pays Sun. Microsoft agreed to pay Sun $700 million to resolve pending antitrust issues and $900 million to resolve all patent issues. The two companies also agreed to pay royalties to each other for their use of their respective technologies, with Microsoft making an up-front payment of $350 million.
- Both parties collaborate on interoperability. The agreement established a framework under which the vendors will collaborate to improve the interoperability between their products. As part of the framework, Microsoft and Sun will gain access to aspects of each other's operating systems to improve interoperability between Windows and Solaris. In the near future, the collaboration will extend to other areas, including interoperability between the firms' identity management and authentication products. The vendors also intend to create additional linkages between the Java and .NET development platforms over time.
- Sun supports Windows. To improve interoperability between Windows clients and Sun servers, Sun will sign a license for Windows desktop communications protocols. It has also certified its Intel Xeon servers on Windows and will do the same for its AMD Opteron servers in the near future.
- Microsoft supports Java...somewhat. Instead of dropping support for its aging version of the Java Virtual Machine (JVM) later this year, Microsoft will provide security patches for the product until the end of 2007. While the software giant has made no moves to license the current Java Development Kit 1.4 release, Sun is stating that it hopes Microsoft will do so as their collaborative efforts increase.
- Patents may be shared. Besides agreeing not to sue each other for past patent infringements, the vendors created a framework under which Microsoft can buy protection from future patent lawsuits for up to 10 years by making annual payments to Sun. If Microsoft chooses to make payments for the full 10 years and does not sue Sun for patent infringements, the vendors will enter a cross-licensing agreement that covers all of their patents. If that happens, both firms could get license rights to all of each other's patents.
The Quid Pro Quo
While the agreement between sworn foes may seem incongruous at face value, it makes sense on closer inspection. Over the last several years, both firms have increasingly found themselves fighting the same industry forces rather than each other. Among those forces, none have been more important than the Linux movement and IBM's effective use of that movement to hurt both Sun and Microsoft. By promoting Linux on Intel servers, IBM has siphoned millions of dollars away from Sun's UltraSPARC servers and Microsoft's software. By integrating open source software and standards into the Java platform, Big Blue has become the de facto leader for much of the Java community and has relegated Sun's middleware to niche status.
These accomplishments go a long way toward explaining what happened on April 2. In effect, Microsoft and Sun agreed to build enough interoperability into their products to convince customers to prefer them over open source software and IBM's Linux-based offerings. Such interoperability could be highly valuable, as thousands of enterprises rely on Sun's servers and Java for their enterprise applications and Windows servers for their networks and clients. Many of those enterprises could agree that the value of such interoperability exceeds the value of the flexibility and openness that Linux offers them.
No matter what the agreement accomplishes on the interoperability front, it will benefit Sun and Microsoft in other ways. Sun will gain almost $2 billion to keep it afloat after suffering 12 consecutive quarters of declining revenues. It will also gain Microsoft's support for Windows versions of its Intel and Advanced Micro Devices servers, thereby opening lucrative markets to the UNIX server vendor. In addition, Sun could build linkages between Windows, Solaris, .NET, and its Java middleware that other vendors could not replicate. That could rebuild support for Sun's software stack among developers--support that has often tilted toward IBM over the last two years.
For Microsoft, the agreement buys relief from troubling legal distractions and mends fences with an enemy that could have hurt the software giant in its antitrust lawsuit with the European Commission. It helps to maintain Solaris as a viable alternative to Linux, enabling Microsoft to use Solaris as a proxy in its battle with the open source operating system. It also gives Microsoft improved access to Java's inner workings and an opportunity to make it more Windows- and .NET-friendly. That could attract more Java developers to .NET or, at the least, make Java less of a competitive threat.
Clearly, what Microsoft and Sun are pledging to each other could cause a tectonic shift in the IT industry. If the two vendors live up to those pledges, they could build significant momentum around Windows, Solaris, and the middleware stacks of both operating systems. That could affect support for other implementations of the Java platform--particularly that of IBM--as well as the attempts of the open source community to take Java in a Linux-centric, anti-Windows direction. It could even cause a rift in the Java community--to Sun's chagrin--that could work to Microsoft's benefit. Then again, the Sun-Microsoft agreement may never lead to any of these outcomes. Much depends on how and to what extent the two firms collaborate, and the history of business shows that many alliances between former enemies fail to live up to their full potential. Only time will tell if these former enemies defy that record.
Beneficial Partnership or Unholy Alliance?
I realize as I write this that many of you might consider this agreement to be a conspiracy between two vendors to maintain their proprietary hold on the IT industry. That is certainly the way that the Linux community sees it. On the other hand, Microsoft and Sun portray their agreement as a decision to cooperate for the good of the customer. Which side is right? To some extent, they both are. From what I have learned of human nature and business, most alliances are a strange brew of noble and base motives. This agreement is no exception, and I see plenty of mixed motives among its proponents and detractors.
As an analyst who has bemusedly observed 20 years of this industry's machinations, I see something else here. I see an agreement that--regardless of its ethical status or ultimate outcome--is a shrewd move on the part of Microsoft and Sun. It is a move that opens new avenues for both vendors to compete with a resurgent IBM. It is a move that renews the debate over the role of intellectual property rights in the creation of IT value. It is also a move that could force both sides of the debate to make better products. Whatever this agreement achieves, you can be sure that I will keep an eye on how it develops and let you know what it means for the IT community in general and iSeries customers in particular.