Oracle Buys MySQL, Java, and some other stuff. Now what?

Big headline this morning with Oracle buying Sun after IBM had walked away.  The deal is valued at $7.4 billion, which is just a hair over a 40% premium.  Not too bad.  Pretty typical in fact for an Oracle acquisition.  After a close call, Sun has avoided being Yahoo 2.0 in the mergers and acquisitions game.  Congratulations.  Now what?

I wrote my headline as I did for a reason.  Most people think of Sun as a hardware company, but there’s more too it than that, and hardware is the least of what’s important for this deal.  First, consider the perspective on deal size.  This is not the largest acquisition Oracle has made.  It’s clearly still a strategic deal, but there is room given the deal size for Oracle’s interest to be something different than hardware.  That’s not what Oracle is saying, but it is a practical possibility.  With that perspective in mind, let’s consider what the deal might mean:

–  There will be wholesale carnage at Sun.  The company had not been especially healthy before the acquisition, but Oracle is pledging to deliver a 15% margin in the first year.  I don’t doubt they can achieve that number, but doing so will require a vigorous shake up.  Costs will be cut.  Premiums will be tacked on in strategic places.

–  Oracle has consolidated its hold on key IT technologies relatively cheaply.  MySQL, Java, and Solaris/SPARC are all de facto standards in the marketplace.  Java is particularly compatible with Oracle’s BEA unit.

–  Startups and web companies should be wondering how much longer the free lunch is going to last.  Oracle has never been known for its generosity, and an extremely large market has been dining for free on MySQL and Java for years.  Will Oracle change that dynamic in some way?

–  Big Companies take note:  prices will be going up and service levels + innovation down.  Mostly this doesn’t phase you, I know, but perhaps this would be a good time to rethink that whole “fewer bigger vendors” thing?  Start loading up on SaaS solutions and let those vendors deal with it. 

–  Assuming Oracle does something to make one or the other unpalatable, would you rather have to move off of MySQL or Java?  Personally, I’d rather deal with moving off MySQL.  There are several viable alternatives in the market that would involve a pretty minimal porting project and that are known to perform well, some even think better than MySQL.  Porting from Java to some other language is problematic to say the least, and nigh unto impossible to be realistic.  Vinnie Mirchandani has labeled MySQL “MyToast”, and says Oracle can’t possibly let it continue to compete with it’s mainstream server.  Larry Dignan agrees, and I confess I am concerned  too.  Om Malik wonders whether Oracle will take care to keep the MySQL developers happy.  That presumes Oracle wants them happy, or hard at work improving MySQL further.  At the very least I would expect Oracle to be a lot less squeamish than Sun about setting up a tiered set of versions where only the bottom tier is really free.

–  You have to wonder what a further consolidation of the database world means for the likes of Microsoft’s SQL Server and IBM’s DB2.  If I were in their shoes, I would be gearing up the legal machinery to force Oracle to divest MySQL before they even get started for anti-trust reasons.  Don’t be surprised if some such comes to pass before it’s all over.  I think that would be a good thing for the industry, if only to save MySQL from becoming MyToast.

–  What about the app server world?  It doesn’t get talked about a lot, but most of the companies I talk to had moved off WebLogic and WebSphere to favor the open source alternatives like JBoss and Tomcat.  Can Oracle do something to Java to make it favor WebLogic?  I haven’t thought that one through, but if it’s possible, they’ll probably look into it.

–  And what about other vendors?  Mirchandani says John Chambers is probably chuckling.  Probably true.  IBM will have told themselves by now this is the best that could have happened and they’re glad they dodged a bullet.  At the same time, there are some butterflies deep down in their gut.  There is now a new combined hardware and software player that is of a scale to cause IBM some problems.  What to do?  Buy SAP would be my suggestion, but that’s the subject for another blog post to really dig into it.  And what of HP?  Well again, they’re probably with IBM, having convinced themselves Oracle will fumble the hardware ball and it won’t matter.  But they’ve got to be wondering what they should acquire in response.

–  Last crazy thought.  Oracle has poo-poohed SaaS for a long time.  Is there a scenario that rationalizes a Sun acquisition with a strong move into SaaS for Oracle?  I think there is.  First, vertical integration from apps all the way down to the hardware can be an effective recipe for lowering costs, although it does tend to slow innovation.  Cloud computing is all about minimizing costs, and there have been a number of interesting developments in terms of hardware built for the Cloud.  Sun also has Cloud initiatives underway.  The thing about the Cloud is it causes fewer larger transactions.  It bundles customers into gigantic data centers.  There is a lot riding on what these data centers standardize on.  Oracle could milk the external sales of SPARC to defray costs while their true strategic intent is to go big in the Cloud.  Big enough to own it.  Think about what a cost advantage Oracle could have in the SaaS world:  they don’t pay for the DB, they get hardware at cost, they don’t pay for the OS, they don’t pay for the app server, yada, yada.  Meanwhile, they can squeeze the margins of other SaaS companies who do have to pay for all of that.

These guys play for keeps.

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