A recent California court ruling forces Oracle to honor an earlier agreement and port its database and other software to Hewlett-Packard servers running Intel's Itanium processor just as it supports the IBM Power platform. HP's courtroom win puts it in a unique position to turn the tables and play Oracle.
The unique dynamic between hardware and software companies generally favors the software side, which is far more flexible and moves faster, but this new ruling should slow Oracle down and give HP a huge edge—if the company plays it right.
Why Software Is King, to Hardware's Chagrin
I became familiar with this dynamic years ago while working in IBM's software division. Much of the value the software unit provided was in optimizing hardware so people didn't end up buying as much of it. Software had evolved from being a free part of the IBM solution to being the highest profit generator for the company—but a lot of that profit came at the expense of hardware sales.
This is particularly true of traditional hardware-independent, large-scale software companies such as Microsoft (at least with its servers) and, prior to its purchase of Sun Microsystems, Oracle. Such firms can focus a great deal of their efforts on extending, maximizing and sharing existing hardware and use the hardware cost savings as a benefit that offsets new software costs.
While this works great for software companies, the hardware vendors, and internal hardware divisions, aren't amused. Software used to be king, but, with the recent judgment and Oracle's policy to support HP and IBM equally, the worm may have turned.
Making Itanium Oracle's Preferred Platform
Oracle is built around a complex pricing model designed to milk every ounce of cash from a potential customer. Tying execution to IBM architecture potentially locks Oracle into a strategy that HP could use against the company. Theoretically, HP could design hardware reversing the model that optimizes Oracle pricing, or HP could use software supplements to reduce Oracle charges and therefore justify their existence based on the Oracle licensing money that is saved. Or HP could do both.
Should Oracle respond with price adjustments, HP could legitimately call foul and may get financial relief and penalties from Oracle, which HP could then turn into additional discounts for its customers, becoming a huge thorn in Oracle's side in the process.
Since HP doesn't have a database product and now has an adverse relationship with Oracle, the typical balance between hardware and software doesn't need to be maintained. HP can focus like a laser on both, pointing out Oracle's nasty pricing model and providing creative workarounds for it.
Add this to the judge's ruling and penalties HP will get from Oracle, which HP will be able to use to both advance its products and to fund marketing programs, and it looks like Oracle may have turned HP/Itanium into a better platform for Oracle than it was when Oracle and HP were partners.
HP in Position to Beat Sun—Again
Oracle is clearly putting massive pressure on customers to buy the Sun hardware that even its sales force thinks is a pig with lipstick (or just plain blows, as a leaked internal memo says). But to hold up this failing division, Oracle has to increase software prices.
This creates a huge opportunity for HP, which has always had the better hardware (and is part of the reason Sun is failing), to aggressively redesign and tune that hardware to optimize Oracle pricing. Done right, the resulting solution would not only be cheaper, it should be better than Oracle's own offering. This wouldn't even be possible had not Oracle first tried, and failed, to kill off HP's Itanium servers in the first place.
Clearly, this will also fund HP software alternatives that are designed to replace Oracle entirely and, in mixed shops, provide the best tools to migrate from Oracle to more cost-effective platforms. This suggests a better future for HP and a worse one for Oracle—which is poetic given how HP was mistreated during the Mark Hurd resignation and Oracle divorce events.
Sometimes the IT market is kind of poetic. This appears to be one of those moments—but only if HP gets creative and takes full advantage of Oracle's mistake.
Rob Enderle is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance and Security. Currently, Enderle writes on emerging technology, security and Linux for a variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.