European antitrust regulators' insistence that Microsoft share software coding information with Sun Microsystems may have been the catalyst for ending high-tech's Cold War.
Microsoft last week agreed to pay Sun nearly $2 billion, ending Sun's private antitrust lawsuit and years of bickering between the tech giants. The deal came 10 days after the European Union (news - web sites) slapped Microsoft with a record $613 million fine and ordered changes making it easier for Sun's computer servers to work with Windows PCs.
Once Microsoft saw that it probably would be ordered to make those changes, "it made sense for them to see how much mileage they could get out of settling with Sun," says antitrust attorney Richard Donovan of Kelley Drye & Warren.
Both companies needed to secure tactical footholds in a tough marketplace, analysts say. Tech buyers care less about brand loyalty and more about improving the performance of technology they own.
Microsoft realized it "needed as many allies as possible" to get customers to buy more of its products, says Matt Rosoff, analyst at researcher Directions on Microsoft.
Combined, Microsoft and Sun stand a better chance of catching up to the Linux (news - web sites) movement and its biggest backer, IBM. Linux, the open-source-code operating system created and improved by volunteers, has become the fastest-growing server software, eating into Sun's core business. It has begun to spread into Microsoft's jealously guarded turf of desktop PCs.
Microsoft continues to revile Linux, and Sun has been a lukewarm backer. But in the past six months, Sun has emerged as a vocal proponent of Linux on desktop PCs.
Microsoft and Sun could develop a cooperative competition, as Microsoft has with rivals IBM and Hewlett-Packard. Both IBM and H-P supply Windows PCs and computer servers. But they also tout Linux.
With Friday's settlement, Microsoft has positioned itself to support Sun - and, indirectly, its Linux offerings. "This could be the door opening for Microsoft to participate in Linux," says Stuart Cohen, CEO of Open Source Development Labs.
Microsoft seems willing to adjust its strategy of trying to move corporate customers to an all-Windows shop. "There is nothing in this - nothing, nothing, nothing, nothing - that will do anything other than delight customers," Microsoft CEO Steve Ballmer said.
Yet the competitive sparks won't be easy to squelch. That job will fall largely to Jonathan Schwartz, who was named Sun's president and chief operating officer Friday - the same day Sun announced 3,300 layoffs, or 9% of its workforce.
The fast-talking Schwartz, 38, acted boldly as head of Sun's software division. He championed Sun's acceptance of Linux. He updated the Solaris operating system to run on Intel-powered computers. And he expanded Sun's Java software to cell phones.
Schwartz's promotion shows major shareholders "have finally lost patience with (Sun CEO Scott) McNealy and are looking for a less provocative, more practical approach to getting the company back on track," says analyst Charles King of The Sageza Group.
McNealy's Microsoft bashing has declined as Sun's financial results sank in recent months, prompting thousands of layoffs. The computer maker thrived during the dot-com boom of the late 1990s but has stumbled because of the growth of fast, inexpensive microprocessors and Linux.
"I look forward, not back," McNealy said, explaining his tempered talk. "Look, rhetoric is all good theater. People remember my stuff because it's good." Yahoo News