Sun-MySQL: The Real Winner is Oracle

Dennis Byron submits: Sun (JAVA)-MySQL. Oracle (ORCL)-BEA (BEAS). As I said (see the Oracle-BEA post on January 17), there is one major interconnecting theme in the two major software-supplier acquisitions last week: For users and investors the independent middleware market as we know it is going away.

In Oracle acquiring BEA, the thought process behind that statement is (hopefully) clear and explicit.

In the Sun-MySQL deal, which also will lead to the collapse of middleware independence, it’s actually implicit in Sun’s statement that it wants to get into the database market. That really means Sun wants back into the whole infrastructure stack market, offering a framework from hardware up through business process management, and even applications if you count openOffice.

Think about that (“Sun as a competitor against Oracle in the database market”). That makes Oracle the winner in both deals. Now, instead of worrying about competing against a bunch of hungry nerds toiling away in an aggressive freestanding start-up, conducting guerilla marketing worldwide the way Sun did against DEC and Data General 20 years ago, Oracle just needs to think about Sun as a competitor in the database market.

And on the same day, it put BEA out of its misery!!! A two-fer.

But of course that is not Sun’s objective. Sun wants to take on Oracle, IBM (IBM), SAP (SAP) and others and make sure the others think of Sun as a competitor all the way up and down the stack. As Larry said in the context of his deal, it was “a great day for Java.”

Sun CEO Jonathan Schwartz said the MySQL deal was the “most important acquisition in the history of Sun.” But he also said the MySQL acquisition was complementary to Sun’s JavaDB (Berkeley) and postgreSQL offerings. The latter are other open source software [OSS] projects in which Sun is involved that compete with MySQL. That the competing projects complement each other may be Sun’s intention but that’s just not human nature.

First point: Watch for a tumultuous period starting almost immediately (the deal will be finalized plus/minus April 1) where the multiple OSS database offerings sort themselves out within Sun’s sales force. This will retard MySQL’s growth from what the OSS database might have otherwise achieved in 2008. MySQL may even lose; IT development and marketing guys play hard ball. We have already seen aggressive PR campaigns badmouthing MySQL product and support quality.

Speaking of MySQL’s revenue, the losers in this acquisition were the OSS pureplays and those OSS dual-license guys that still like to call themselves OSS pureplays. Research 2.0 and others estimate MySQL did about $75 million in revenue in 2007. We applaud Sun’s negotiating skill. Even if MySQL only did $50 million in 2007, the lowest estimate we have heard, it means Sun “only” paid 20x annual revenue. In October 2007, Citrix (CTXS) acquired Xensource for somewhere north of 100x 2007 revenue. To be fair to Citrix, it believes it paid about 10x 2008 revenue for Xensource. But of course we won’t know if that’s true for a year and Citrix won’t tell us if it was wrong anyway.

Second point: The value of pureplay-heritage OSS hybrid companies, which is what MySQL was, is dropping by that valuation measurement, coming back to earth from the JBoss, Zimbra and XenSource acquisitions. As I said in my initial blog post on this acquisition, the OSS IPO parade band is turning into a quintet and might simply become a guy accompanying himself on a harmonica by the end of 2008. And as I said when MySQL was beating the IPO drum back in July, a good business case is still more important than a buzzword such as OSS.

In my opinion, the investment opportunities—and OSS’s future—lies on the application functionality side of the market, not the infrastructure side. Alfresco, Compiere, Jaspersoft, etc. are still in the parade but the others best get out of line and find their “proprietary partners” as soon as possible.

As for partners, MySQL allies such as Google (GOOG), HP (HPQ), IBM, and Unisys (UIS) might really be thinking twice about Sun’s acquisition. Intel (INTC), Red Hat (RHT) and SAP pulled a few dollars out of the deal because they were major MySQL investors. But presumably SAP would have preferred that MySQL stay independent because it was probably going to bet on MySQL as a counterweight to Oracle (it doesn’t like having its major competitor “owning” most of the file systems its customers’ SAP applications access). With this acquisition, SAP will now be equally beholden to Sun. But SAP can still switch easily to Ingres or postgreSQL, or even–although unlikely–its own SAP DB.

Smaller MySQL partners, many of whom are also OSS companies, should be helped by this move, as explained over at my OSS blog on ebizQ.net, where I research about OSS all the time.

As for users, Sun believes it can drive new adoption of MySQL’s database in more traditional applications and enterprises. Today MySQL shows up more in embedded applications and “Web 2.0 stuff.” Sun says, “The integration with Sun will greatly extend the commercial appeal of MySQL’s offerings and improve its value proposition with the addition of Sun’s global services organization.” Schwartz said Sun’s research found that the lack of “peace of mind” by large enterprises was holding MySQL back. But some very large enterprises such as Nokia (NOK) and Google weren’t having that problem.

The companies also said more than 100 million copies of MySQL’s OSS database software have been downloaded. A very large percentage of those were for Windows but MySQL said that by the time the database gets to production (only one in a thousand downloads turn into business MySQL had said previously), most are on Linux, with Windows and Solaris second and third in popularity.

Third point: So even major Sun partner, Microsoft (MSFT) might get some benefit out the acquisition.

But in the end, the real winner is Oracle.

Comments

[JoseGoldburger]

Oracle continues to make themselves into IBM while Sun desperately wants to own their own 'LAMP'. Both strategies are valid without a large degree of overlap.

There is also the need to have some sort of valid argument that Solaris is relevant. MySQL will help make that argument through a Sun/Solaris/MySQL take on Oracle RAC.

[Skarjune]

Oracle is not the big winner. In a monopoly-take-all game, you might bet on Oracle; although that would be a risk since there are not a monolithic monopoly like Microsoft. Rather, Sun is smart by getting into the certified OSS stack game, which is where the future is heading, along with VM. Recessions are not kind to monopolies, nor to monopoly wannabees. Too bad SAP never bought MySQL after their invesment, they are the company that continues to be threatened by Oracle.

[Tibcomonkey]

"But of course that is not Sun’s objective. Sun wants to take on Oracle, IBM (IBM), SAP (SAP) and others and make sure the others think of Sun as a competitor all the way up and down the stack. "

I'm curious where SUN has or will compete with SAP. To move to the business applications level, SUN's only option is to partner with both Oracle and SAP. The odds of them finding or building a competitive ERP suite are exactly zero.

[DennisByron(Research2.0)]

TIBCOMonkey --

The reference to SAP should have made clearer that I was referring to its NetWeaver business. As described in many previous posts, SAP in CY 2006 made impressive gains in the middleware market. SAP landed “standalone” middleware business not dependent on its ERP business. Based on the exchange rate used in its 20-F, SAP recognized more than $1B in license/maintenance/li... revenue for NetWeaver in the 12 months ending March 31, 2007.

In fact, counting Business Objects but not counting BEA, SAP probably surpassed Oracle in the middleware market in 2007. That's the part of SAP Sun will be competing with.

Dennis