Oracle and IBM: The New Dynamic Duo?

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One of the subplots that played out in the early days of Oracle’s acquisition spree was the IBM connection: There, inside the customer bases that Oracle acquired from PeopleSoft, JDE Edwards, Retek, Profitlogic, i-Flex, and Siebel was a whole lot of IBM technology: DB2 and Websphere, primarily. Indeed, the IBM factor became part of my analysis of each subsequent deal, and, in most of the cases, Oracle was acquiring IBM customers as much as it was buying the customer base of the company it was acquiring.

When I first wrote about the phenomenon back in the summer of 2005, I used the terms “dating” to characterize the relationship, as opposed to a “trip to the altar”—the two partners were close, but no closer than some of the other coopetition relationships in the market. But after some recent comments by Oracle President Charles Philips, I’m wondering if these two companies are contemplating getting even more serious. Very serious.

The first indication of how serious things may become was a comment in answer to the question of whether Oracle’s forthcoming Fusion Applications would be available on IBM’s DB2. For those of you who don’t know the history of Oracle’s applications strategy, even thinking of running an Oracle application on something other than the Oracle database would be tantamount to France declaring that English was now its official commercial language. Some things, however sensible they may seem, simply aren’t done.

And yet here was Charles Philips telling industry analysts that Oracle had given IBM the specifications for how it would like DB2 to work with Fusion, and that whether IBM wanted to work towards those specs and effectively license DB2 for Fusion Applications was now up to IBM: “The ball is in their court,” Philips said.

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The suggestion that there was a ball and a court, and a game called DB2 for Fusion that could one day be played was delivered in Philip’s trademark calm demeanor, but it was one of those statements that, if it ever came to fruition, would be looked back at as a major bombshell that could rewrite industry dynamics in dramatic fashion. Which I’ll go into in a minute.

Because there was one other little gem about IBM that Philips let slip, which is that IBM is giving Oracle advice on what companies it should buy. The kind of company that IBM wants Oracle to buy, obviously, is one that needs a lot of IBM hardware for its software products. And needs a lot of IBM services as well. Services – as in implementation and systems integration – that Philips told the analysts he was less and less interested in delivering, in favor of his partners like IBM.

So here we have a huge overlap in customer base now being augmented by direct talks about breaking down an almost twenty-year old barrier against outside databases. And some apparently serious input about what companies Oracle can buy to help increase the synergies between Oracle and IBM on both the hardware and services side of IBM’s business. That by itself is pretty darn blockbusting.

But it’s even more dramatic when you think of where the top four IT companies are headed today. SAP and Microsoft are doing a serious coopetition dance, with a lot of cooperation but also a large degree of ambivalence about how to resolve the nasty little problem of what new SAP’s mid-market Business ByDesign offering is going to do to Microsoft’s mid-market Dynamics product line. Oracle and Microsoft are doing a little common work on a number of fronts, one of which is Office connectivity to Oracle, but in most areas, from database to applications to middleware to Web 2.0., Oracle and Microsoft are deeply competitive.

Two other permutations of this quartet are basically non-starters: Microsoft and IBM don’t really have any visible synergies going, and, Oracle and SAP are, well, still the best fight card in the industry. The last one, IBM and SAP, has a large degree of cooperation, but, in my opinion, nothing like what Oracle and IBM are up to.

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Which leaves IBM and Oracle as the closest members of the Big Four, and getting closer all the time, in ways that were unthinkable even two years ago. And at this rate, you have to wonder what more the two companies can do to get even closer. The best three options? IBM could sell Oracle its database business, or, even better, its middleware business, and Oracle could off-load a consulting business that is less and less interesting to Philips anyway.

Such a deal would leave SAP and Microsoft, desperately needing each other more and more, and may itself signal the start of some asset-swapping between those two companies as well.

For those of you who think I must be dreaming, I am. Ever since Oracle admitted the impossible, that its sacrosanct one-database policy was no more, I’m ready for any wild idea. Why not? Four years ago I would have said you could never merge a bunch of big enterprise software companies and get anything but a whole lot of problems for your trouble. Oracle proved me wrong on that one, and now I’m ready to believe that almost anything is possible. Even Oracle’s Fusion running on DB2, for heaven’s sake.