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Ballmer, Butthead and McNealy

-May 01, 2004

When Silicon Valley gets rain every day and Seattle has perpetual sunshine, that's when Sun Microsystems and Microsoft will bury the hatchet. Or so I used to think. Please excuse me, then, for initially wondering if their peace treaty, announced April 2, was a day-late April Fools' hoax reminiscent of the ones Sun pranksters have been known to play on CEO Scott McNealy.

Like others in the Valley, I was shocked when McNealy and Microsoft CEO Steve Ballmer announced an end to their nearly two-decade feud. Only time will tell whether the détente lasts. Their acrimony runs deeper than any earthquake fault in Silicon Valley. But if the peace holds, it should benefit both.

Under the pact, Microsoft will pay Sun nearly $2 billion to settle the latter's antitrust suit, to resolve patent infringement claims regarding Sun's Java technology, and in royalties for Sun IP. The pact spells out a 10-year commitment to work together, share technology and cross-license unspecified IP. Initial collaboration apparently will focus on getting their respective server software to work together.

McNealy and Ballmer also promised to tone down the rhetoric. McNealy, a leader of Silicon Valley's anti-Microsoft movement, always had the sharpest tongue, once referring to Ballmer and Chairman Bill Gates as "Ballmer and Butthead" and often dissing the Windows operating system as a "hairball."

Beneath the words is festering frustration at what McNealy and others, including Oracle's Larry Ellison, perceive as Microsoft's monopolistic practices and its penchant for stealing Silicon Valley's best ideas. McNealy, furious at Microsoft's refusal to make Windows compatible with Java, was an instigator of the U.S. and European Union antitrust cases against Microsoft.

Both need the feud to end. Sun has been bleeding red ink for three years. Its servers are losing out to lower-cost machines that run Windows or open-source Linux. On the day the peace treaty was announced, Sun said that it would lay off 3,300 workers, a 9 percent reduction and its third large layoff in three years. During the current stock market run-up, Sun's share price has been mired at around $5.

Microsoft has enough money to wage a 100-year legal war if it chooses, but court battles distract a management that must pay attention to multiplying markets and the Linux threat.

Corporate customers may be the big winners. McNealy says that nearly every customer demanded that the two cut the rhetoric and collaborate. After spending billions of dollars on technology over two decades—and contributing to the fabulous personal wealth of McNealy, Ballmer and Gates—customers just want products to work together.

That's a message for the entire industry.

Will this truce hold? Send your thoughts to feedback@eb.reedbusiness.com .

Bill Roberts, an Electronic Business contributing writer, has covered the Sun/Microsoft story for a decade. He has no doubt their rivalry will continue.

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