Microsoft Plus Sun Is Addition By Subtraction

(MoneyWatch)  Microsoft and Sun might not be a perfect fit for each other, as Joe Wilcox and my colleague Erik Sherman wrote in response to my argument that Microsoft should yank Sun out from under IBM's feet.

But I'm not arguing that Sun would be a perfect fit for Microsoft. In fact, I'd go so far as to say that there are no perfect fits in the world of mergers and acquisitons. There are perfect fits in the minds of executives and pundits, and then there is the reality, which is a lot messier.

What I am arguing is that Microsoft can afford to buy Sun (especially if it doesn't have to spend $7 billion to do it) just to bury IBM and, in the process, pick up a few important pieces that, with a little luck, could help a few of its critical businesses.

Let me take those one at a time:
Hurting IBM:

• This is a lot more important than it seems. When the Yankees signed Johnny Damon after the 2004 season, they not only added a lead-off hitter they desperately needed--they took away arch-rival Boston's lead-off hitter. They then finished ahead of Boston in each of the next two years. This is called addition by subtraction. In Microsoft's case, it would be yanking away Sun's Star Office productivity suite, breaking the back of IBM's ambitions to recover lost ground on the desktop. It also takes Java, an important programming language -- and the developer community that goes with it -- away from IBM.
• IBM would have had Sun's hardware and virtualization technology to help it counter Cisco's recent foray into the data center, but not if Microsoft scarfs it up.

Picking up some pieces:

• Microsoft needs Sun hardware to provide customers with cloud-based services, and those plans would have been dealt a severe blow had IBM acquired Sun. Not only can Microsoft not afford to let Sun dangle out there for some other rival to grab, but it wouldn't hurt to have that technology in-house. Granted Microsoft isn't in the hardware business (putting aside the X-box and Zune), but there's nothing to stop it from going there.
• Microsoft needs hardware partners to install its Hyper-V virtualization technology, but VMware, the current market leader for server virtualization, is allied with Cisco. Sun and HP are agnostic, but for how long? Microsoft could assure itself of a server partner by acquiring Sun.
• Many educational institutions and government agencies, both in the U.S. and around the world, have enacted rules mandating that public documents be produced using non-proprietary (i.e., non-Microsoft) technology. Microsoft could remain in the game, and develop relationships in those industry verticals, by offering the Sun-sponsored Open Office suite on which Star Office is built.
• Now that it's been publicly humiliated by IBM, Sun is unlikely to turn up its nose at a reasonable offer. Microsoft could do its stock price a whole lot of good by picking up an innovative company on the cheap.

Wilcox agreed with me that if it acquired Sun, Microsoft would be taking the wind out of IBM's sails, but he made another good point that I overlooked. Sun chairman, co-founder and long-time Microsoft nemesis Scott McNealy is unlikely to approve a sale to Microsoft. But McNealy may not want to walk down the same plank as Jerry Yang, finding himself on the wrong side of a power struggle with investors, and poorer for his efforts. But he just might retire as chairman to save face, remonstrate from the outside, and cooly bank his capital gains.

I wrote in an earlier post that for better or for worse, 'it's personal, not business.' But just as a lot of deals that look good on paper go badly in reality, we've also seen that business sometimes makes strange bedfellows.