What Oracle's Open Source Retreat Means

Jun. 2.11 | About: Oracle Corporation (ORCL)

Larry Ellison hates open source.

Having covered the space for five years at ZDNet, I know this for a fact. Ellison has, in fact, replaced Bill Gates as the face of proprietary, closed-source software.

(The image to the right is a mashup of Ellison's Wikipedia picture and one of Emperor Palpatine, the villain in Star Wars.)

So it must have stuck in his craw this week to retreat before the awesome power of the open source model. Only one reason for this makes sense. The pressure was hurting Oracle's business.

When Oracle bought Sun Microsystems last year, it also bought three of the leading open source projects – the Java programming language, the OpenOffice.org productivity suite, and the mySQL database.

While the company's rhetoric before the acquisition indicated it wanted the open source assets, the big money at Sun was always in its server business. To open source advocates, it became clear just months after the deal went down that what Oracle wanted with these open source crown jewels was to either make them proprietary or ruin them:

Then, in the last month, Oracle reversed those last two actions. It gave control of the Openoffice.org code to Apache, and moved to close the split over the JCP.

What's going on? Oracle has not gone soft. The changes at mySQL remain. The company's sole interest remains profit. It is, at heart, a database company, and neutering a major open source rival, absorbing it and increasing prices so as to make it less-attractive as an Oracle alternative, has to be a win.

But Oracle has realized, belatedly, the power of the open source development process, and the power of the open source market. It has surrendered a great deal of power to Apache, giving it the Openoffice.org code and moving to heal the rift over Java.

I keynoted Apache's developer conference in Atlanta last year, and learned there that this is not, as commonly believed, a hippie commune or socialist paradise. It represents a collection of highly-skilled developers, most of whom work for very large corporations, who are pooling their knowledge so their employers can benefit from the resulting shared infrastructure.

Software remains the one important good in our economy that's still made by hand. Its development is the flip side of Moore's Law – costs rise exponentially while quality improves only gradually. Oracle, like Microsoft (NASDAQ:MSFT), felt that when these costs drove commercial rivals from the market they would win monopoly rents, but the open source process now allows many companies to compete directly with the big boys, by building services like Facebook and Twitter or adding proprietary extensions to open source projects – perfectly legitimate under the Apache license.

So if you own stock in an open source company like VMWare (NYSE:VMW) or Red Hat (NYSE:RHT), this is good news. But it's also good news for shareholders in Oracle, Microsoft and other proprietary software outfits. The war is over, and while open source has won the bottom-line benefits will go to the industry as a whole, not any particular segment of it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.