In my previous post I speculated that Oracle will sell off most of Sun's hardware businesses allowing them to keep Sun's software businesses effectively for free. I still think that's the right strategy for Oracle. It would allow them to cement relationships with partners like HP, Dell, Fujitsu, EMC, NEC, etc. while further isolating IBM. If Oracle remains in the hardware business they are, like IBM, competing with everyone on that list. This only serves to strengthen the Microsoft relationship with companies like HP and Dell and isolates Oracle.
But let's assume for the moment that Oracle does stay in the hardware business. How does IBM respond? IBM has traditionally positioned itself as an infrastructure and services company, drawing the dividing line in its businesses at applications. IBM provides the infrastructure (hardware and software) and services; its partners provide the applications. This has worked well in the past. It has encouraged application developers to partner with IBM, building on IBM infrastructure and turning IBM into the leading application platform vendor.
Oracle, in contrast, started as a software infrastructure vendor and many years ago decided to compete with it's partners by moving into the applications business. As Oracle has gobbled up applications vendors, IBM has seen it's software partners shrink. With the acquisition of Sun, Oracle now competes squarely with IBM in infrastructure in both the hardware and software spaces. Add to this Oracle's already strong presence in applications and it presents a problem for IBM.
The downside to being in the infrastructure business is that you depend on the application to pull demand for the infrrastructure. That is, business people decide first what applications they need and second what platform they need for those applications, not the other way around. So if your applications portfolio (either directly or through partners) is strong, infrastructure does very well. If not, it's a very difficult business. Oracle today owns a healthy applications business that can pull its infrastructure. IBM does not.
Further, IBM's dividing line of applications was drawn at a time when there were more applications vendors who needed its infrastructure. Today the landscape has thinned. Companies that used to be infrastructure like Oracle and Microsoft have entered the applications business. Microsoft, arguably IBM's largest competitor as a platform vendor, is in the applications business. Finally, in another trend worthy of a separate discussion applications themselves are beginning to look more like infrastructure as they become platforms for third party extensions. All of this leaves IBM looking lonelier and lonelier without applications as part of its portfolio.
Enter SAP. Given the competitive landscape an IBM acquisition of SAP no longer looks as threatening to the applications market as it once did. Now it just looks like IBM trying to stay competitive with the likes of Oracle and Microsoft. Further, SAP finds itself isolated as the infrastructure partners it needs (e.g. Oracle and Microsoft) increasingly compete for its business with their own offerings. By acquiring SAP IBM solves its gap at the applications tier in the stack and remains competitive with Oracle and Microsoft. By combining with IBM SAP gains the rest of the stack it needs to stay competitive in the middleware space. It's a win-win for both parties.