The possible IBM acquisition of Sun has finally settled. Software giant, Oracle, has come out holding the Sun trophy.

Hang on, where did that come from? Most everyone in the media appeared to have been caught off-guard. Why would Oracle, the world’s 6th largest software vendor according to Software Magazine even consider such a deal? What could Oracle possibly gain from a Sun acquisition?

Oracle CEO, Larry Ellison, seems to think this is a good fit. “Oracle will be the only company that can engineer an integrated system – applications to disk – where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.” was posted on the Oracle press release issued April 20.

The same carefully drafted press release also appears on Sun’s website and quotes Sun Founder and Chairman, Scott McNealy as syaing: “Oracle and Sun have been industry pioneers and close partners for more than 20 years. This combination is a natural evolution of our relationship and will be an industry-defining event.”

The deal would suddenly propel Oracle into the Tier 1 server vendor marketplace competing head-to-head with IBM and HP for a place in the analyst polls of leaders. the acquisition also gives Oracle a leg up in the storage where Sun has a dominant position in enterprise tape library business, thanks to its earlier acquisition of StorageTek, and a stake in the promising open software storage space.

Where are the overlaps? According to an IDC 2008 report, Oracle led the worldwide database market share in terms of revenue growth with 44.3% far ahead of archrival IBM’s 21% share. What happens now with MySQL – arguably one of the most popular open source database software in the market today?  Will Oracle throw it out the same way it did to Innodb when it acquired Innobase in 2005?

Some argue that we will not see a repeat of history. MySQL does not compete with Oracle 11g. There are literally world’s apar: the former is ‘almost’ free whereas Oracle’s flagship product makes a significant dent in most IT budgets – if you could licensing and software.

There is an interesting blog discussion on reddit about the potential for Oracle to offer MySQL as a lite version of Oracle database. But as with all other blog discussions I’ve read so far, people are thinking MySQL is not a threat to Oracle’s database business. Rather, the service and support side of MySQL is something that would be a plus to have given the very large community of MySQL users in the world. How to make them all pay for support without causing an exodus to other open source alternatives will be the challenge.

Another big bonus to Oracle is Sun’s large install base of happy customers in government, telecommunications and finance. This is something IBM sales folks will be salivating over, and fearing, as now Oracle sales people start cozing up to the same customers for database upgrades (DB2 out! 11g in!).

The really big question is what to do with all that hardware? Oracle is not a hardware company. The one time it did try to become a hardware vendor was when it launched the Network Computer, a collaboration with Sun. Despite much media coverage, that product never took off. 

 If the vendor is to ever succeed in the hardware business, Oracle will have to work hard to make sure it keeps the right Sun talent on board especially for the duration of the integration, and it wouldn’t harm, if they stayed on even with an Oracle badge and business card. Expect to see a long, hard road. Easy enough to predict an exodus of talent from the original Sun camp.

Theresa Lanowitz, founder of Voke Inc, raises the potential clash of cultures – Oracle is a software vendor whereas Sun has hardware hardwired into its DNA. “Sun does not understand how to develop, productize, and market compelling software,” says Lanowitz. She also predicts dire future for a number of areas of practice within Sun in an Oracle future (or rather lack of future in an Oracle world).

What’s next for Oracle? The vendor has shown a strong knack for acquiring software vendors. Perhaps this is where it should keep its focus. What about Red Hat?

Finally, a quick recap of what IBM lost in the deal. It lost JAVA to which Big Blue has made public its commitment to the platform. Oracle gets instant access to the very large MySQL database community, and the potential service revenue that comes with it. With the Sun Solaris tucked neatly under its belt, Oracle has the opportunity to “finely tune Oracle database for some of the unique high-end features of Solaris.” On the hardware side, IBM would have had 100% market share of enterprise tape library business following a Sun deal.

All this for a measely extra US$1Billion? Oracle bought Sun for US$7.4 Billion compared to IBM’s offer of US$6.5 Billion.

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