Can Sun-Microsoft cease-fire halt the war?

With Friday's sweeping settlement, Sun's Scott McNealy now finds himself in an unlikely alliance with his greatest foe: Microsoft.

The outspoken CEO has spent the better part of 15 years battling the software giant from Redmond, Wash., in the marketplace and the courtroom, culminating with a $1 billion antitrust lawsuit in 2002 over Microsoft's handling of Sun's Java software.

To veteran watchers of both companies, the alliance, sealed with a handshake between McNealy and Microsoft Chief Executive Steve Ballmer, seems an improbable outcome if you look at their war of words.

McNealy and Ballmer share common roots--both men grew up in the Detroit area and had fathers who worked in the auto industry. Each also rose to prominence in the technology business by leading scrappy upstarts that challenged the status quo: Sun, by pioneering the market for powerful workstation computers, while Microsoft led the move from minicomputers to PCs.

But for years, each company has been the other's most hated rival, dating back to Sun's call for Microsoft to publish Windows interfaces in the early 1990s. McNealy's Sun has championed powerful Unix-based computers and its Java software for building business applications. Ballmer, along with Microsoft's co-founder Bill Gates, has built a nearly $60 billion mountain of cash by selling high-volume, low-cost software like Windows and Office, and by championing software built with its .Net programming framework.

More recently, the two companies have squared off in the market for desktop application software. While Microsoft's Office controls more than 90 percent of the market, Sun has been trying to build a foothold in government and academia with its StarOffice and OpenOffice software bundles.

Fighting words
Along the way, at virtually every opportunity, McNealy has taken swipes at Microsoft in what has become nearly a religious war. Sun's vociferous complaints galvanized rivals and helped fuel several antitrust investigations, including an ongoing European Commission case. To McNealy, Microsoft was the "evil empire" or the "dark side." In 2002, he told a press conference: "People say, 'Why haven't you retired?' I said, 'I can't leave my kids to a world of control-alt-delete,'" referring to the keystroke combination needed to restart computers running Windows.

Sun and Microsoft call a truce Scott McNealy and Steve Ballmer

Over the years, McNealy has taken aim at nearly every Microsoft product and initiative, coming up with numerous jabs. Microsoft's Outlook e-mail software was "Look Out," the virus-prone "petri dish of choice on the Internet." Microsoft's Internet Information Server software for hosting Web sites was "the Corvair of Web servers--unsafe at any speed." Active Directory, used for keeping track of elements on corporate networks, is "Captive Directory," at the center of Microsoft's "hair ball" of inextricable software products. Microsoft's .Net development strategy is ".Not," "Not Yet" and sometimes ".Nut."

To encourage developers to support alternatives to Microsoft's Internet Explorer browser, bundled into every copy of Windows, he said: "You can take the offer from the dark side. The first hit of heroin is free."

McNealy often cast Sun's battle with Microsoft for software developers in militaristic tones. "We've got bayonets fixed, and we'll go into any cave, no matter how dark and dank it is. And in the air war (against Microsoft to win new developers), we'll go after any developer and not just let them turn over to the dark side," he said in 2002.

When Microsoft Chairman Bill Gates made the debut of a new strategy in 1998, McNealy quipped: "Microsoft is now talking about the 'digital nervous system.' I guess I would be nervous if my system was built on their technology, too."

McNealy's gibes also revealed a grudging respect--or envy--of the software maker's business. "Microsoft has a great strategy and it works," he once said. "Bill (Gates) doesn't have a 30-car garage for no reason."

Microsoft has relied less on rhetoric and more on hardball business tactics. But Gates has in the past made it clear that the two companies are worlds apart in philosophy. "Sun's pretty much almost about as pure as you can get as a competitor (to Microsoft). Sun believes in expensive hardware. They think that software R&D shouldn't be funded; they think the idea of empowering knowledge workers is a bad idea," he told CNET News.com in 2001.

Gates also feared Java's popularity, however. In e-mail messages disclosed during courtroom battles, Gates admitted to be "scared to death" that Java might reduce people's reliance on Windows. Eventually, Microsoft licensed Java and modified development tools to create a Windows-only version of Java, which led to Sun's lawsuit against the software maker. Microsoft eventually abandoned that strategy and later debuted its own Java-like language, called C#.

The software giant's behind-the-scenes dealings to limit Sun's involvement in Web services technology came to light in 2002. When a group called the Web Services Interoperability (WS-I) organization was formed to promote industry collaboration, Microsoft specifically requested that Sun be excluded as a founding member, according to e-mail conversations uncovered during legal actions between the companies. "I can live with this if we have the positioning clearly in our favor. In particular, Sun not being one of the movers/announcers/founding members," Gates wrote.

A new era?
With that contentious history behind them, can Sun and Microsoft truly bury the hatchet? McNealy says yes. During a press conference on Friday, McNealy said customers have requested that he tone down his anti-Microsoft rhetoric and focus instead on an arrangement where the two companies still compete but their products work well together.

Friday's agreement reflects a change in the company's mindset to a more customer-centric approach. He said dealings as the two companies worked on the agreement had been professional and respectful.

"Maybe we've grown up. Maybe they're grown up. Who knows?" McNealy said. "Maybe the customers have gotten more in charge, which is what I think is happening."

Many industry analysts have in recent years joined customers in calling for an end to the war of words. "It really opens the opportunity to let Sun get away from old wars that probably are no longer serving a useful purpose," said Gordon Haff, an analyst at Illuminata.

The agreement is also a realization that the information technology market has changed. "If you're an anti-Microsoft bigot, then this is Scott McNealy selling out," said James Governor, an analyst at RedMonk. "But for anyone who is serious about running Linux and Java and .Net in an interoperable fashion, this is super news."

Most companies support both Java and .Net and will continue to do so, analysts said. "Sun and Microsoft have essentially shook hands and said, 'Neither of us will go away, so we might as well work together,'" said Frank Gillett, an analyst at Forrester Research.

Clearly, there are strategic reasons for the deal between the companies. Gillett also said that through the agreement, Microsoft has endorsed Sun as a viable Unix vendor and alternative to IBM, which now emerges as a common enemy of both companies.

But just how future cooperation will play out--and whether the detente will last--is still unclear. "This is one of those things where the devil is in the details, and not only the details, but how you implement them," said Charles DiBona, an analyst at Sanford Bernstein. "You often see nice words, but we have to see how this plays out."

News.com's Michael Kanellos contributed to this report.