<<Any thoughts on what might be unveiled by SUNW?>>
Sun plans purchase of Star Division
Hopes to compete with Microsoft Office applications
By Mike Tarsala, CBS MarketWatch
Last Update: 6:02 PM ET Aug 27, 1999
Hardware Report
Silicon Stocks
PALO ALTO, Calif. (CBS.MW) -- Sun Microsystems next week will
buy Star Division, a German application software provider, to go head to
head against Microsoft in the personal computer software market,
according to a person close to the company and analysts.
Sun (SUNW: news, msgs) plans to announce the
acquisition at a press conference in New York on
Tuesday. Star Division makes a family of software
products similar to Microsoft's (MSFT: news,
msgs) popular Office suite of products. The
products include a word processor, spreadsheet
and presentation software.
The acquisition will give Sun "about the closest
thing to real competition to Microsoft Office," said
Rob Enderle, an analyst with Giga Information
Group in Santa Clara, Calif., who said he's heard
the deal is set to be announced. "It's almost a clone
of Microsoft Office with a couple of advantages."
Officials at a Star office in Freemont, Calif. did not
return a phone call seeking comment. Officials at
Palo Alto-based Sun declined to comment The
company said Thursday that it plans to unveil the
"next piece" of its Internet strategy in New York on
Tuesday.
Sun's shares rose 1 Friday to 76 3/16.
The deal, which will enhance Sun's Internet strategy, follows the
company's acquisition of Forte Software Inc. on Aug. 23 for about $540
million in stock. It was unclear how much Sun will pay for Star Division
because analysts did not have a good idea how many people the private
company employs or what its revenues are.
Star Division's ace is that unlike Office, Star Division runs on Unix, Linux,
IBM's OS/2 and other operating systems. It could tap a market
unavailable to Microsoft.
The software works with data from popular Microsoft programs,
including Microsoft Word.
Sun plans to continue offering the software for free to consumers, one
person close to the company said. But the company will make money
from Star Division by selling the software to Internet service providers,
who can then offer applications as a service to customers. Sun already has
built strong sales loyalty for its brawny computers among some of the
world's largest Internet service providers.
The sales strategy is
similar to the tack
taken by Linux
software companies,
such as Research
Triangle, N.C.-based
Red Hat Inc. (RHAT:
news, msgs) and
others. Red Hat, along
with Caldera, Pacific
Hi-Tech and others,
practically give away
their high-end
computer operating
systems, and profit on
servicing the software.
"Certain types of software, such as operating systems, migrate towards
freeness," said Nicholas Moore, an analyst with Jurika & Voyles in
Oakland, Calif. "What you're really buying is the support."
However, free software hasn't been wildly successful in the business
market, where Sun hopes to profit, Moore said.
"It's almost always the wrong thing to do," Moore said. "Buying the
software is a very small part of the cost. Free software really isn't free.
You end up paying more for the support."
Other companies that compete with Microsoft's Office include Corel
Corp. and IBM Corp. Still, Microsoft holds roughly 85% of the market
for applications suites.
Then again, Corel and Microsoft aren't giving away their suites. Sun's
long-term profitability from acquiring Star Division is questionable,
analysts say. But it does stab at the heart of long-time Sun rival,
Microsoft.
The hype surrounding Linux already has Microsoft executives worried,
analysts have said. Now a freebie competitor has a new avenue of attack
in going after Microsoft's application suite. It could eventually force
Microsoft to lower its software prices.
Microsoft is unlikely to lose market share because of Star Division, Giga's
Enderle said. But the company would've faced a challenge had IBM
acquired the company. IBM (IBM: news, msgs) executives reportedly
were in talks about purchasing Star Division in July, but the talks broke
down, according to Enderle.
IBM has a broader customer base and more clout in the computing
market than Sun, Enderle said. But some executives within IBM
reportedly feared buying Star Division would take business away from
IBM's Lotus division, which sells an application suite.
"I think it will go down as one of IBM's biggest mistakes over time,"
Enderle said.
Mike Tarsala is a reporter for CBS MarketWatch. |
