Talk about bad feelings. Not too long ago, employees of

Sun Microsystems

(SUNW) - Get Report

were forbidden on pain of firing to use

Microsoft

(MSFT) - Get Report

products while at work.

But 12 months after the longtime tech rivals publicly kissed and made up, the two companies are working hard to make their once-incompatible technologies work together, and in the process they are taking aim at an even larger rival --

IBM

(IBM) - Get Report

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.

"A year ago we were emerging from the courtroom and moving to the computer lab. Twelve months later we are poised to enter the marketplace together," Microsoft CEO Steve Ballmer said at a joint appearance with Sun boss Scott McNealy in Palo Alto, Calif.

The two CEOs, who knew each other at Harvard University, joked and chatted like old college chums, and when it was time to show how well their security technology works together, the Microsoft technician wore a Sun shirt and the Sun techie wore a Microsoft shirt.

For the most part, the two executives stressed the benefits the new alliance will bring to customers. For example, many businesses use both Microsoft- and Sun-based systems. Signing on to both used to require multiple layers of passwords. Now it can be done just once. Similarly, an IT manager will be able to manage both systems from a single console.

As the differences between the systems are minimized, it will become easier for developers to write applications that run on either -- which means both companies will be able to reach a broader customer base.

The bottom line is that we have Solaris

Sun's operating system and Windows playing nice across the board," McNealy said.

On a more abstract level, the two companies control two of the most important software stacks in the industry. Those stacks, or layers, are essentially the framework around which an enterprise builds its computing networks. A third stack is controlled by IBM, which still has a large presence in the world of mainframe computing. "The backbone of enterprise computing is moving off of the mainframe. We disagree about were it should go, but we agree that it needs to go," said Ballmer.

And McNealy likened giving computing resources to IBM Global Services to "giving your car to the kid at the restaurant with the green, spiky hair and body piercings."

The era of detente between Sun and Microsoft started a year ago when the companies signed a 10-year technical collaboration agreement. Microsoft also agreed to pay Sun $700 million to resolve antitrust issues, $900 million to resolve patent suits and $350 in royalty payments.