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Google and Sun joining forces
Firms to forge partnership that will offer alternative to Microsoft products.
October 5, 2005: 2:55 PM EDT
By Amanda Cantrell, CNN/Money staff writer

NEW YORK (CNN/Money) - Internet search giant Google and network computing company Sun Microsystems have entered into a multi-year agreement to distribute Sun's software technologies, a move some say is meant to offer users an alternative to Microsoft products.

Both Google CEO Eric Schmidt and Sun CEO Scott McNealy kept mum on the specifics of the partnership, apart from announcing a deal to distribute the popular Google toolbar, which allows users to search both the Web and their desktops through Sun's Java Runtime Environment, a software package that needs to be installed on a machine in order to run Java technology-based applications. As part of the deal, users who download the JRE software package will have the option of downloading the Google Toolbar.

"That is the only substantive announcement they made today," said David Edwards, an analyst at American Technology Research. "I find it interesting that they held a big press conference to announce it. This kind of toolbar deal is in place with other downloads. There are other toolbar deals; they're always looking for ways to distribute their toolbar."

"The Google Toolbar will be downloaded by tens of millions of people as a result of this partnership," Google CEO Eric Schmidt said at the press conference. "This is a new set of users that will ... (present) an opportunity for revenue for both companies."

"We want to leverage the network economics," said McNealy. "There are 80 million unique Google site users per month."

Shares of Google (Research) fell over 2 percent to $311. Sun's (Research) shares, after enjoying a run upward before the press conference, closed at $4.20, a penny above yesterday's close. Microsoft (Research) shares closed at $24.98, a 2 percent drop from yesterday's closing price.

A challenge to Microsoft?

Sun and Google also said they would jointly promote Sun's Java Desktop operating system and its Open Office productivity software system, a free, open-source productivity software suite. The partnership could mark a shift away from the traditional method of distributing software through the Microsoft Windows system and bring greater visibility to such Java-based programs as OpenOffice.org.

"Though the exact terms of the deal were not announced, we believe this creates a potentially interesting new revenue opportunity for Google," wrote Citigroup analyst Mark Mahaney in a research note. "Office productivity tools alone is a $10 billion plus market. Although it is currently dominated by Microsoft, it does offer a sizable opportunity for Google."

But analysts said that until the companies announce more specific plans, it's hard to say what impact, if any, this will have on either company's bottom line.

"The real question is, is there a way that Google can monetize these (applications)?" asked Phil Remek, an analyst with Guzman & Company an institutional brokerage firm "If it's distributing some basic word processor free as an applet on the desk top, how will Google make money? While interesting from a technology standpoint, I'm not sure it has a lot of financial implications right now. It may take some time for us to see more tangible effects from collaboration between the two companies."

One potential area: using Google as a way for Sun to distribute its open source office software. Goldman Sachs analysts Rick Sherlund and Christopher Sailer wrote in a note to clients that there is clear potential for Google to host an Office-like product, such as Sun's StarOffice or OpenOffice.org. The state of Massachusetts just announced that it will now require all new document formats for the state to support OpenDocument, a format that Microsoft currently does not support. The analysts said this could give a boost to Sun.

"We believe it is logical that Google will want to offer an Outlook-like product," the analysts wrote. "They already have GMail, so why not an integrated calendar and contact manager, and why not just offer a more fully functional Office-like Product? StarOffice has not gained much traction with Google, maybe it could do better hosted on the Internet, mostly in the consumer market."

Brent Bracelin, an analyst for Pacific Crest Securities, agreed, adding, "Clearly, Microsoft and Google are battling for mind share out there. If you look at the Web and as a new delivery platform for software, there is going to be more overlap between those two vendors."

Reunion for Schmidt, McNealy

Microsoft and Sun's famously acrimonious relationship thawed last year, when the two companies announced they had agreed to end all litigation against one another and collaborate on server software technology. In addition, the companies agreed to pay each other royalties for the use of each other's technology.

Sun CEO Scott McNealy declined to come out swinging against Microsoft when asked about it at the press conference, saying, "Everything is not a hockey match. But at some point, it's about giving the customer choice."

Schmidt and McNealy made the announcement in Mountain View, Calif., on Tuesday. The partnership reunites Schmidt with his former boss. Schmidt worked at Sun for 14 years where he was CTO and led the development of Java before joining Google.

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Goldman Sachs owns shares of Google, makes a market in the shares of Google, Microsoft and Sun Microsystems and has banking ties to the companies. None of the other analysts quoted own shares of the companies mentioned, nor do they have banking ties to the companies. Citigroup's Mahhaney does not own shares of Google but Citigroup is a market maker in shares of Google and has other banking ties to the company.  Top of page

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