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Sun the software company?

July 24, 1998
Web posted at: 2:30 PM EDT

by Niall McKay and Lynda Radosevich

(IDG) -- Sun Microsystems' recent acquisition of application server vendor NetDynamics underscores just how badly Sun wants to jump-start its independent enterprise software business and glean revenue from its massive investment in Java technology.

In addition, the deal represents the first in a series of Sun acquisitions seeking to level the playing field with partners such as IBM, Oracle, and Netscape, and to compete aggressively with Microsoft in the middleware market.

In the past, Sun has done well selling software tied to its hardware sales. But the company's move into independent software sales, as represented by its purchase of application server vendor NetDynamics, carries it into uncharted waters.

"Solaris has done very well as far as it being a leading Unix operating system for Sun, but how much attention has Solaris attracted outside of Sun?" said Laura Conigliaro, an analyst at Goldman Sachs, in New York. "You could go through the other key software products and say the same thing."

Sun officials said the company's new software strategy will revolve around software "infrastructure," the middleware that connects back-end data sources to intranets and the Web, which will require investment.

However, Sun's first show of hand, the NetDynamics purchase, exhibits a flawed approach according to some critics. NetDynamics gives Sun only a small piece of what it needs, and the integration needed may render the acquisition not worthwhile.

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"Sun has made a strategic mistake with this acquisition," said Yefim Natis, an analyst at the Gartner Group, in Stamford Conn. "Now in order to complete the whole picture of what they need -- and that includes messaging, transaction support, application integration middleware -- they will have to acquire other companies and integrate what they have with what NetDynamics has, which is a very difficult task and very likely to fail."

For instance, NetDynamics does not yet support Sun's Enterprise JavaBeans (EJB) specification, its Java Database Connectivity, or its Java Servlett APIs, and it uses Inprise's object request broker (ORB) technology instead of Sun's JavaIDL ORB. Integration of all these technologies may take as long as one year to complete, analysts said.

Sun responds that NetDynamics is more than a technology buy.

"What we were looking for with NetDynamics goes far beyond the technology," said Jonathan Schwartz, Sun's new head of enterprise products for the Java Software division. "Market share was a huge consideration."

Another task for Sun is building the distribution channels, technical expertise, management expertise, and professional services the company needs to compete with more seasoned players in the middleware market.

Sun will also have to prioritize the needs of its customers vs. its legal battles with Microsoft.

"If Sun could bury the ax and come up with a pure Java that everybody can use, I think it has a lot of promise," said Chuck Beyer, information officer at Northwest Natural Gas, in Portland, Ore. "But I don't think it's going to happen. [Sun CEO Scott] McNealy, [Microsoft Chairman Bill] Gates, neither one of them are going to give in here."

An additional challenge for Sun's software push is remaining open to non-Sun platforms and technologies. Sun officials promise that this is their company's intention.

"One of the assurances that McNealy gave us was that he wanted NetDynamics to be the leading application server on the Windows NT platform," said Zach Rinat, former CEO of NetDynamics.

Sun also has to walk a delicate line as a Java partner, supplier of core technology, and Java competitor releasing Java products. Seventy percent of NetDynamics servers are on the Windows NT platform, and they implement Microsoft's JView Java virtual machine. Sun is in legal battles with Microsoft over the latter company's implementation of Java. As a result, JView support will not continue, according to Alan Baratz, president of the Java Software division.

The big question is if Sun can depart from its old model of using its software business to sell more Unix boxes or whether it can grow an independent revenue from its investment in Java technology.

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