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IBM are there, and they are welcome to the market.
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Personally, I wouldn't try to compete in the top end. The bottom is creeping up on the middle though, and so it is important for Sun that they focus on the bottom. Solaris lives in the middle, where the volumes are small and the margins are high. At the bottom end, there is Windows or Linux (or the *BSDs, but even though I use them I realise they are a tiny percentage of the market). Solaris can't compete with these, and neither can Linux. At the really high end, systems like OpenVMS and z/OS still rule.
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It has a license that the FSF call Free, although some people have problems with it. Technically, it's superior in most regards (driver support being a big exception, but this is not a problem for servers, since they are certified for the OS or not sold). Sun, on the other hand, is trying to position Solaris as a Linux competitor. This could backfire for them, since people will start to wonder why they should by from IBM, rather than some other random Linux vendor. They are pushing the Linux brand hard, because Linux is cool at the moment. They seem to be doing everything they can to gut it and put everything that makes it worthwhile in to Linux. You dont see IBM giving away their AIX operating system for free, do you? No, but then I don't really see IBM selling AIX, except to those people already using it.