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Martin LaMonica

Staff Writer, CNET

Microsoft and Sun Microsystems may be going steady, but they aren’t quite sure where the relationship is headed.

The companies gave an update Wednesday to their “ongoing dialogue” about product interoperability that stemmed from a far-ranging partnership announced in April.

With payments of $1.95 billion to Sun and the onstage reconciliation between Sun CEO Scott McNealy and Microsoft CEO Steve Ballmer–bitter rivals for many years–expectations for the landmark, 10-year agreement are high.

But in sharp contrast to the hoopla that surrounded the announcement of the deal, the companies’ first progress report was tempered and tactical. Executives offered few details on future product plans beyond early next year.

That deliberate caution points to the challenges the companies face in making their partnership successful. Sun and Microsoft will still compete in key areas, such as server software and development tools. And though they’re committed to a long-term partnership to iron out differences where it makes mutual sense, they still have thorny technical and business obstacles in their way.

“The real question is: Will they give each other each enough space where they can collaborate such that it’s good for customers and both companies can make money?” said Christopher Lochhead, chief marketing officer at software company Mercury, which works with both Microsoft and Sun. “That’s a hard thing to figure out, especially considering that they hated each other.”

Microsoft and Sun said they are intentionally being conservative in setting expectations. Company executives noted some areas of potential interoperability beyond network authorization, Web services specifications and product certification, but they steered clear of grandiose claims or ambitious product plans.

“When we do have something to announce, it’s going to be looked at with a lot of interest,” said Andrew Layman, director of distributed systems/interoperability at Microsoft. “We want to make sure it lives up to expectations.”

The companies’ procedures for working together–which include scheduled executive conferences and monthly meetings between 24 engineers–are more significant than any actual product development, argued Greg Papadopoulos, Sun’s chief technology officer.

“The issue here has fundamentally been around trust,” he said.

Under scrutiny
Still, the companies’ commitment to product interoperability is being closely watched. It represents $350 million of the $1.95 billion deal, which also settled litigation and established that neither company would sue the other on the basis of patents.

Because the legal settlement was such a large portion of the arrangement, it remains unclear how significant the product interoperability portion of the deal really is, said Michael Cherry, an analyst at research firm Directions on Microsoft.

If Microsoft and Sun end up focusing on making existing protocols work together, rather than on developing future products, the joint work will have a smaller impact on both companies’ customers, he said.

“The toughest challenge is for them to get anything done in a reasonable amount of time,” Cherry said. “What happens with these agreements is that they get made, the clock keeps ticking, the technology changes and, over time, things get irrelevant.”

The toughest challenge is for them to get anything done in a reasonable amount of time.

–Michael Cherry, analyst, Directions on Microsoft

Thus far, Microsoft and Sun have mainly talked about making their existing products work better together, rather than about collaborating on products under development, Cherry said.

For example, rather than use older protocols, Microsoft could make its future Web services communications system, called Indigo, the protocol of choice when exchanging information between programs running on Solaris and Windows machines. Similarly, making Microsoft’s file system WinFS run on Solaris would greatly improve search in corporate networks, he said.

Looking ahead
Sun and Microsoft made mention of some of the potential areas of future common work, including creating better interoperability between Microsoft’s management products stemming from its Dynamic Systems Initiative and Sun’s own data center management software, called N1.

“DSI and N1 are sort of in the same stages of their lives,” Papadopoulos said. “We have an opportunity to influence each other.”

Papadopoulos, who has met several times with Microsoft Chief Software Architect Bill Gates, said the two companies are doing more than simply supporting or directing the development of industry standards.

“I wouldn’t be involved at this level, and Gates wouldn’t be involved at this level, if we thought these were just standards activities. There is real tangible stuff that our customers have told us to solve,” he said.

Going beyond supporting existing standards and working on product interoperability could set Sun and Microsoft apart in the eyes of customers. For example, in the area of systems management, standards allow two separate products to talk to each other, but they generally don’t enable one vendor’s product to administer a mixed network of gear from Sun, Microsoft and others.

“When you can manage through one common tool and set up group policies for Sun users from Microsoft Active Directory, then you don’t have to cross-train managers on administration tools,” said Kerry Gerontianos, president of Incremax Technologies, which develops custom Microsoft applications. “That higher level of interoperability means real savings.”

On the software development front, the two companies have not committed to any closer interoperability between Microsoft’s .Net development tools for Windows and Sun’s Java line of tools and server software–something company observers had originally expected. The only work thus far that relates to software development is a commitment to work together on Web services standards proposals, Papadopoulos said.

Indeed, both companies’ respective development tools and middleware “stacks” will likely continue to be their main point of competition. That infrastructure software is typically very expensive and critical to sales of add-on products and services. It’s also vital in fending off industry heavyweights IBM, Oracle and SAP.

Though how they will collaborate is still not exactly clear, both companies do have a strategic interest in working together, analysts said.

With corporate customers demanding that products work better together and require less custom integration work, better interoperability of Sun and Microsoft gear could give the companies a leg up against common competitor IBM. Also, the operating systems business of both Microsoft and Sun compete with Linux providers, notably Red Hat.

Establishing yourself as a long-term strategic partner for enterprise buyers makes you a survivor.

–Mark Stahlman, analyst, Caris

From Sun’s perspective, having a 10-year, $2 billion partnership with Microsoft helps dispel concerns over the company’s long-term viability, said Mark Stahlman, a financial analyst at Caris & Co. He noted that corporate customers prefer to work with full-service providers that can provide a full range of products, which the two companies can offer in combination.

“Everybody has gone through enough pain in the last few years, you would be foolish not to consider the possibility that you’ll be out of business in five years. So establishing yourself as a long-term strategic partner for enterprise buyers makes you a survivor,” Stahlman said.

Working with Sun, Microsoft could gain more credibility in selling into corporate data centers and breaking out of its roots as a desktop software provider, said Frank Gillett, analyst at Forrester Research.

But even as the two companies explore their areas of mutual interest, the full potential isn’t yet clear. And with the high hopes attached to the historical Microsoft-Sun pact, it remains to be seen how far their relationship will go.

“I’m not convinced that Microsoft executives are fully bought into it,” said Gillett. “But I think they are experimenting deeper than any of us would have thought.”