Love stinks: The worst mergers in the history of the technology industry

Love stinks: The worst mergers in the history of the technology industry

Summary: Valentine's Day is here again, and love is in the air. Couples flirting, courting, forming relationships. Sometimes those relationships result in marriage. Marriages occur in the tech world, too. Corporate mergers can result in the two parts being stronger than the whole, or they can end in utter disaster.

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  • Oracle & Sun Microsystems

    Take one of the most established players in the enterprise software industry and merge it with one of the most established players in enterprise hardware, you get one hell of of combination, right?

    Well, maybe not.

    Sun Microsystems, once the darling of Silicon Valley, started to experience problems in the mid-2000's when the emergence of commodity Linux x86-based servers, the rise in popularity of Open Source software and pressure from other high-end enterprise systems vendors such as IBM and HP began to erode much of the company's core server business.

    To counteract this downward trend, the company began to embrace a more Open Source philosophy with projects such as Opensolaris, OpenOffice and Glassfish, and began to acquire Open Source software firms such as MySQL AB, VirtualBox and sponsor external Open Source projects such as Xen, which became the foundation for their xVM virtualization product line.

    Unfortunately, many of these efforts were too late to save the company, and it became obvious in 2009 that the only route for the company's survival was that of being acquired by a much larger competitor.

    IBM, Fujitsu and HP were thought to be the prime candidates, but in a last minute and completely unexpected move, Oracle came in with the winning bid for about $7.2 billion including buying off the company's debt.

    What followed was to be expected. Thousands of employees lost their jobs, and many of the Open Source efforts that Sun began were quickly extinguished, including OpenSolaris. The OpenOffice project effectively disbanded and regrouped under the Document Foundation as LibreOffice, and the founding MySQL team forked into a number of different projects.

    Under Oracle's leadership, Sun's core hardware business has continued to decline dramatically. To recoup the losses, Oracle filed patent lawsuits against Google for allegedly using their Java intellectual property in their Android operating system, which uses virtual machine software called Dalvik that emulates the programming syntax of, but is not compatible with Java.

    Oracle asked the courts for billions of dollars in damages in the hopes of turning their Sun lemon into lemonade. If Oracle had succeeded in collecting substantial damages from Google, it would have made its investment in Sun a smart one.

    But as we know now, Oracle's damages by Google were deemed to be zero, and the company collected effectively nothing as a result of its ligitation and is currently awaiting appeal.

    If that appeal turns out to be fruitless, then the Oracle acquisition of Sun will probably go down in history as one of the biggest strategic blunders by a technology company of all time.

    Either way you look at it, between the mass layoffs of talent, extinguishing of Sun's open source corporate culture and its attempt at weaponizing Java against Google, Sun has become anything but an honest woman under Oracle's stewardship.
     

  • AOL & Time Warner

    Facing challenges from the growing Internet/Web and broadband industry in the late 1990s that was encroaching on its bread and butter dialup services and "walled garden" of content, on-line services provider America Online pursued a strategy of re-invention as a content and broadband giant by purchasing Time Warner in the year 2000 for a whopping $164 billion.

    The merger, executed by AOL CEO Steve Case and Time Warner CEO Gerald M Levin, turned out to be a total fiasco, with the new company unable to capitalize on Time Warner's strengths. Total subscribers of AOL went from an estimated 30 million at the height of its popularity to less than just over 5 million in 2007, with no significant quarterly growth since 2002.

    The company's market valuation has plunged significantly from a high of $240 billion to $1.73 billion as of February of 2012.

    In 2009, shortly after appointing a new CEO, Tim Armstrong, AOL announced it would spin off Time Warner into a separate public company, ending a fruitless eight year relationship.

    AOL has since gone on a New Media purchasing spree, including Patch, Techcrunch and The Huffington Post, which joins their other New Media properties such as Engdaget which it acquired as a result of its Weblogs, Inc. purchase in 2005.

    The result of these New Media mergers has been something of a disaster in and of itself.

    After re-organizing all of its its new media properties under one roof and appointing Arianna Huffington as its leader, TechCrunch became the subject of a highly publicized internal power struggle.

    TechCrunch's founder Michael Arrington came into conflict with Huffington over journalistic ethics when he unveiled a plan, with AOL's backing, to start a venture capitalist fund to invest in the very same sort of companies which he writing for Techcrunch chronicled.

    After weeks of public blog posts criticizing his employer and the media circus surrounding him, Arrington was terminated. This resulted in the departure of several members of TechCrunch's staff, including Paul Carr, one of its most popular writers, as well as the company's CEO, Heather Harde.
     

  • HP & Compaq

    In the late 1980's, HP determined that their PA-RISC systems architecture for enterprise-class servers was going to hit a performance scaling threshold and began to investigate a new systems architecture, VLIW (Very Long Instruction Word). 

    In 1994, under the direction of CEO Lewis E. Platt, believing that it was no longer cost-effective for HP to have its own microprocessor foundry, the company ceased production and development of PA-RISC, shut down its own foundries and instead partnered with Intel to produce this new VLIW 64-bit enterprise chip, which came to be known as the IA-64.

    Released by Intel and HP as the "Itanium" in 2001 after seven years of development and billions of dollars of R&D invested, the chip earned the early nickname of "Itanic" due to its low performance compared to less expensive, commodity x86 chips in most regular business applications. IA-64 also proved to be horribly slow when executing x86 instructions, which it had to do using software emulation.

    Eventually, both AMD and Intel would produce 64-bit x86 systems, which when clustered in HPC configurations would easily outperform equivalent IA-64 systems for significantly less money.

    IBM and Sun would continue to develop their POWER and SPARC architectures for their high-end servers, which eroded most of HP's high-end market share.

    While other vendors such as Dell and IBM briefly introduced and sold Itanium-based systems, they shortly discontinued them. An executive at Dell publicly referred to the product as an "Albatross".

    While the Itanium partnership with Intel surely started HP down the road to hell, it was accelerated in 2001 when HP, under the guidance of CEO Carly Fiorina decided to merge with Compaq in a $25 billion dollar deal.

    Many large shareholders opposed the merger, including Walter Hewlett, the company's outspoken director and son of the company's co-founder, who engaged in a proxy battle in an attempt to prevent it. The prime objection was that Compaq had many overlapping product lines and would get the company involved in the low-margin PC business that its main competitor, IBM, was already in the process of exiting.

    Compaq had only just acquired Digital Equipment Corporation (DEC) four years before, along with its powerful 64-bit Alpha RISC chip and Windows NT/Digital UNIX servers that had seen some moderate success in High-Performance Computing environments.

    Seen by both executives at HP and Compaq as a redundant overlapping product under the new merged company and with Intel's IA-64 efforts underway, the Alpha -- arguably a much more mature, better supported and more desirable platform was phased out.

    Under Carly Fiorina's reign, the merged "New" HP lost half of its market value and the company incurred heavy job losses. Fiorina stepped down in 2005.

    Since the Compaq merger, HP has endured numerous problems with failed initiatives, dubious acquisitions (3COM, EDS, Palm, Autonomy) and has been plagued with ineffective management, including two major ethics scandals that have forced Chairwoman Patricia Dunn and two CEOs in succession, Mark Hurd and Leo Apotheker to resign.

    Third-party OS development for Itanium other than HP's HP/UX UNIX derivative is now practically non-existent, as Microsoft no longer produces an IA-64 version of Windows Server. Itanium is considered to be a deprecated and legacy architecture by the Linux Kernel Project and is no longer actively supported by mainstream Linux distributions such as Red Hat, SuSE, Debian and Ubuntu.

    HP is now the only company to sell Itanium-based servers under their Integrity brand, and Oracle is only begrudgingly still developing software for the chip, after entering and exiting litigation with HP over the matter.

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Topics: Software, Enterprise Software, Hardware, Mobile OS, Mobility, Networking, Software Development

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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  • RE: Love stinks: The worst mergers in the history of the technology industry

    ZDNet first post bug . . .
    CobraA1
    • Dear ZDNET editors

      Please UPDATE YOUR HORRIBLE IMAGE GALLERY SOFTWARE

      It's sucks. I have to load an entire new page just to see the next image. The scroll triggered by the arrows don't make sense.

      It looks like a relic from the 90s
      markbn
  • RE: Love stinks: The worst mergers in the history of the technology industry

    "The litigation debacle went on for years, chronicled in gory detail on sites such as Groklaw."

    Indeed, I think Groklaw pretty much started because of this debacle. Frankly, SCO's biggest blunder was this lawsuit. It's not worth bankrupting the company over a lawsuit.

    "The Many Marriages of Palm"

    Yeah, who knows what Palm was doing in its last years. Before it finally merged with HP, it went from a great company to one that released new products once in a blue moon.

    Thankfully, by the time they went under smartphones became popular, and I moved myself to my iPod touch, and later iPhone. Today's smart phones have all of the PIM features the old Palm devices had.

    And alas, HP was unable to save the already floundering Palm.

    "Oracle & Sun"

    Guess we'll find out. I was never so much interested in Sun's hardware as their software, and Java is still being actively developed.

    "Total subscribers of AOL went from an estimated 30 million at the height of its popularity to less than just over 5 million in 2007, with no significant quarterly growth since 2002."

    Dunno if that was the result of the merger so much as it was the result of broadband and the internet. AOL was a walled garden stuck in dialup.

    "Hewlett Packard & Compaq & Digital Equipment Corporation"

    Compaqs, oh I remember those - BSOD city. They crashed all the time.

    "Nortel & Bay"

    "After numerous efforts to restructure the company and financial mismanagement scandals over a period of about ten years, the company filed for Chapter 11 in January of 2009, and its various businesses were eventually liquidated."

    And one of my relatives lost his job :(. He worked for Nortel.
    CobraA1
    • Bad Mergers....Nortel and Bay...

      Yeah, I worked for Nortel for 12 years......I think the problem there was too much focus on Marketing and not enough on engineering..........there was a time when they had no sales and marketing but after all the smart designers and engineers left adding more sales and marketing people was a giant mistake.....you can't market what you don't have.

      That and the whole company was run by bean counters and clerks.

      It had its moment in the sun as a much welcomed alternative to the AT&T / Pac Bell monopoly but then crashed and burned with the loss of outstanding engineering and design people.
      Gary Amstutz
    • Re: AOL was a walled garden stuck in dialup.

      The completely peculiar and inexplicable thing was, while every other ISP adopted PPP as the standard dialup protocol, allowing any off-the-shelf OS to connect without custom software, AOL insisted on its own special proprietary client. While this didn't seem to put off customers in dialup days, maybe the fact that AOL allowed itself to be left behind by the move to broadband was simply because it could not create an equally proprietary broadband connection client.
      ldo17
    • Proliant vs Netserver

      Give me a Compaq any day over an HP. That is why they rebranded the compaq stuff and got rid of most of the HP line
      Turd Furgeson
    • Origins of Groklaw

      It did indeed begin as a commentary on SCO v IBM. It branched out from there, but that was the focus as long as the SCO cases were active.
      John L. Ries
  • I would agree with your assesment on many of mergers you have mentioned

    except for the KIN.

    [i]But the negative experience with the Kin still taints its reputation not only with consumers but also with critical wireless carriers such as Verizon, who as of yet has refused to commit to selling more than one model of Windows Phone or an LTE version which puts it on par with its arsenal of Android devices[/i]

    The vast majority of consumers have never heard of the KIN, so how can one have negative opinion of something that they have no knowledge of?

    As for Verizon, there are issues on many levels, one is theirs, and Google's heavy investment into Android, as an early counter to the iPhone, something they passed on, so one can argue they do not make the best decisions when given the chance.

    I feel the lack of a push on Verizon's end in reference to WP7 is an effort to "not upset the boat" in relations to Google at the moment.
    Tim Cook
    • RE: Love stinks: The worst mergers in the history of the technology industry

      @Mister Spock <br>The problem is that Verizon mandated data plan on what is essentially NOT a smartphone.<br><br>KIN would have done well to compete with feature phones.
      illegaloperation
    • Peoples' memories are only as long as their current contract

      Are tech people already measuring their lives in numbers of mobile phone contracts?
      Patanjali
  • Is this the rational behind spending billions on dated technology?

    You mention companies like Novel and Borland or their assets being acquired by other companies - spending huge dollar amounts to do so.

    Is it because of patent portfolios that acquiring companies purchase these outdated technologies or businesses?
    kenosha77a
    • RE: Love stinks: The worst mergers in the history of the technology industry

      @kenosha77a Patents and legacy maintenance business.
      jperlow
  • RE: Love stinks: The worst mergers in the history of the technology industry

    My(Murdock)Space a perfect example of how not to do it. <br>Take a new technology, totally misunderstand what it is about, destroy the customer base by enforcing change without analyzing the likely effects, etc., etc. <br>One for the classroom of Business 101.
    Agnostic_OS
    • RE: Love stinks: The worst mergers in the history of the technology industry

      @Agnostic_OS

      Well of course, Mr Murdoch was not used to "customers" creating their "own news". His model was that his empire created it, and the "customers" consumed it. Duh. Bad move Murdoch. Perhaps he should have got the company to bribe the police a bit more... Oh wait, that wouldn't have worked on MySpace either.
      Bozzer
    • MySpace was already on its way out...

      when Murdock purchased it, which is what made that purchase even weirder. Prodigy, Geocities, Myspace, and now Facebook... That's the progression so far. Facebook's replacement is next, just hard to say what it is, or what it will be...
      admiraljkb
      • Replacing Facebook?...

        riiiight. Keep us posted on how that goes ;)
        Robert Fishwick
    • sounds

      Like a certain MS
      ArcaneAce
  • Too early to pass judgment on Oracle's acquisition of Sun

    It's far too early to say whether Oracle's acquisition of Sun was good or bad. If the alternative for Sun was insolvency, then Sun shareholders probably came out ahead. The same may be true of Sun employees, not all of whom were laid off. Of course, we'll never know for certain what would have happened to Sun if Oracle hadn't acquired it.<br><br>From the Oracle side, if the Java litigation is successful, Sun will have turned out to be rather a bargain for Oracle shareholders, no matter how badly the hardware business does. It will also serve as a warning to other firms that trying to use someone else's IP without paying for it can actually cost more in the long run than than paying for it up front. This is good for Oracle, the IT sector generally and all industries that rely on IP protection. It will be bad for Google, of course, but it was Google management's choice to gamble on not paying Sun for the Java IP Google allegedly used anyway.
    WilErz
    • ummm, the Java code used was Open Sourced anyway.

      No money to be made, just a license. Oracle's suing mainly over the terms of a free license not being observed, and Oracle LOST on almost all counts. The Judge on the lawsuit, has written extensively on the decision mainly in Google's favor that almost precludes appeal, unless Oracle is nuts.

      Sun would have been better off being acquired by IBM, which uses Java extensively in its projects, is a large Open Source company, as well as having the Symphony fork of OpenOffice. Essentially, IBM makes serious money on Java, while Sun didn't comprehend how to do that.
      admiraljkb
      • No it would not have been.

        As an employee of Sun at the time, I can tell you that Oracle did not swoop in and out bid IBM, the deal with IBM had already fallen through. And the general attitude of the employees was that we were thankful that it did. The overlap in product lines between Sun and IBM was nearly 100%. The only thing we knew they wanted was Java, everything else was subject to immediate cancellation. Oracle, on the other hand had very little overlap with Sun. We knew they wanted Java as well, but there was very little that we could be sure would be cancelled.

        As far as how it all worked out, it is indeed too soon to tell. Much was canceled because it either didn't make money or didn't fit the Oracle corporate strategy. Other areas declined because they were destined to decline and Oracle couldn't stop it just as Sun had been unable to. But many areas have flourished and are on the rise.
        blu_z