Last Updated Apr 6, 2009 2:53 PM EDT
Most obviously, it can humiliate IBM at a moment when Big Blue's proposal to Sun is on the rocks. The wedding has been called off, but there's a good chance that the couple could kiss and make up, given that the underlying reasons for IBM's bid are still intact: Sun has been shopping itself desperately because it needs a partner to remain a going concern, and IBM needs to strengthen its position in the data center now that Cisco has decided to sell servers and compete with it in the data center.
IBM also needs to undercut Microsoft's cloud strategy, or see the extinction of Lotus Notes, its desktop email and productivity suite. The entire IT industry is moving to cloud-based infrastructures, which allows customers to avoid buying and maintaining their own infrastructure by renting it from cloud platform vendors like Amazon, Google, and, yes, Sun, IBM and Microsoft. The industry is also undergoing a massive shift from software installed in company-owned data centers to one where customers subscribe to business applications on a per-month, per-user basis.
As I noted in an earlier post, one of IBM's motives for acquiring Sun was to disrupt Microsoft's cloud strategy, for which Sun is a key partner. Now, Microsoft can turn the tables on IBM by acquiring Sun, giving it hardware on which to run its cloud platform, access to the popular Java programming language and, perhaps most importantly for its long-term aspirations, a key to the OpenOffice productivity suite.
Owning OpenOffice would give it an open-source alternative to Office, thus opening the door to government and educational contracts that might be closed to proprietary software vendors. It would also help sell the cloud-based version of its SharePoint collaboration suite--thus killing any chance IBM has of reversing the slide of Lotus Notes into obscurity. In the bargain, it would inherit a team of innovative engineers who would new breath life into Microsoft's product management-driven, incrementalist approach to change.
Earlier this year, Microsoft CEO Steve Ballmer indicated that Microsoft would use the difficult economy to look for bargains. Sun balked at IBM's offer of $9.40 per share, and shares were selling at under $5 before news of the deal's collapse became public. How much more of a bargain does Ballmer need?
This could also be Ballmer's last shot at making a big splash at Microsoft. He failed to sway Yahoo or Facebook and let DoubleCick get away to Google. Furthermore, Microsoft's board may get tired of seeing its stock remain flat for the better part of a decade. Sure, such a deal would face regulatory hurdles, but probably fewer than there would have been for a Yahoo acquisition, and certainly less than IBM would have faced had its deal gone forward.
Microsoft and Sun would have to resolve some product overlap: both make databases, virtualization software and programming languages, to name a few. In many cases, though, it would make sense to keep both sets rather than eliminating one, and of all the potential suitors for Sun, Microsoft could probably best make the case that customers would be better served by this merger than some other.
My esteemed colleague Erik Sherman thinks this idea is nuts.