Oracle, Sun deals shake up middleware market

Sun buys MySQL, Oracle grabs BEA

Oracle and Sun are shelling out $9.5 billion combined for the acquisitions of middleware maker BEA Systems and open-source database maker MySQL.

This week's billion-dollar acquisitions by Oracle and Sun jolted the middleware market, and raised some new concerns for enterprises pursuing service-oriented architecture deployments and considering the use of open source code to flesh them out.

For enterprises, the concerns are twofold. In the case of Oracle's $8.5 billion deal to purchase middleware maker BEA Systems, customers worry that overlapping product lines will result in the discontinuation of some products.

MySQL users, meanwhile, will likely keep close tabs on whether new owner Sun (which has offered $1 billion for the Swedish open source database vendor) keeps the product code as open as they're accustomed to.

On the business front, the deals alter competitive landscapes.

"The Oracle acquisition of BEA will alter Oracle's internal software development, boost its SOA efforts, and of course add revenue to the company. The Sun acquisition of MySQL will change the face of open source software as part of user data centers - and affect the business of open source software in general," says analyst firm Saugatuck Technology.

A look at the two mergers

The deals open up new areas of competition between Oracle and Sun, which have long been friendly because Oracle database software is often used on Sun servers, analysts say. Now Sun is getting into Oracle's core database business, while Oracle snatched up BEA, whose application server and other middleware products compete with Sun's Java Enterprise System.

"They're competing and cooperating simultaneously," says Ian Finley, an AMR Research analyst. "I don't think [Wednesday's acquisitions] will dramatically change the relationship with Oracle and Sun. ... It may drive Oracle to partner more aggressively with other hardware providers. Sun has become less and less relevant to Oracle over time anyway," as Sun's hold on the data center has loosened.

Finley gave credit to Sun for the MySQL acquisition, saying "this is the first interesting thing Sun has done in the last five years. It does shake things up."

Although the Oracle and Sun acquisitions have different strategic aims, one of the most important factors driving each deal is IBM, according to Charles King of the Pund-IT analyst firm.

"Just as IBM has come to represent the gold standard in IT services," King writes, "its highly integrated middleware strategy and development efforts have enabled the company to compete head to head with and regularly beat specialists such as Oracle, and to entirely surpass the efforts of traditional systems vendor competitors like Sun."

Sun's bold buy

Sun's $1 billion play for MySQL AB is a deft move, and a dangerous one.

It's deft because it exploits a trend toward open source software, and Web-based, online applications. It's dangerous because this "Web economy," as Sun CEO Jonathan Schwartz dubs it, is also the prime hunting ground for Oracle, IBM and especially Microsoft. Sun and MySQL have sidestepped the traditional database market to jump feet first into the emerging one.

Both companies are betting that the open source software stack LAMP - named for the Linux operating system, Apache Web server, MySQL database and PHP scripting language - is a perfect fit for the Web-based, service-oriented software architecture taking root in the enterprise.

The deal "puts Sun into a leadership position in the LAMP stack," says Raven Zachary, research director for open source at The 451 Group. "This is a major shift in Sun's database strategy. We're likely to see more moves by Sun in the future to move its open strategy to the next level."

Both companies also are betting that the next generation of emerging, fast-growing companies will be more open to open source than traditional enterprises.

"In the old client/server world, you have DB2 or Oracle on a server running payroll, or accounting, or other financial applications," says Marten Mickos, CEO of MySQL. "But accounting doesn't grow. On the Web, everything grows. That's the main difference here."

And that requires a different, more modern database, he says. "MySQL is unique in that we are the only significant relational database designed for the Internet, to save data to Web pages," Mickos says. "All the others were designed before the Internet, for offline applications."

Sun's global tech and customer support, plus its fat R&D budget, are just what MySQL needs to penetrate the large-company market, says Noel Yuhanna, principal analyst with Forrester Research. "They've done very well in the small-medium business market, and with smaller database applications," he says. "The larger enterprise is where the problem was: People were concerned about the long-term viability of MySQL."

But the move brings Sun and MySQL more squarely into competition with Microsoft's SQL Server 2005, says Josh Farina, analyst with Technology Business Research (TBR). "TBR believes Microsoft has taken [market] share away from the open source databases at the departmental or small-business level," he says. "Microsoft's out-of-the-box integration with other pieces of the Microsoft stack is a strong differentiator."

For Sun's billion-dollar gamble to pay off, it will have to maintain and strengthen ties with the open source community and tie the MySQL database ever more tightly into the emerging open source software framework for the Web.

BEA stares down Oracle

Meanwhile, BEA's leaders thought they could do better than Oracle's $6.7 billion offer three months ago, and they did. (Some of the sting of paying $8.5 billion will be relieved by the fact that BEA has $1.3 billion cash on hand, which will pass to Oracle after the acquisition is completed).

It seems BEA received "a lot of pressure from their shareholders ... when they sort of pushed back hard on the initial Oracle offer, because it was significantly over the historical trading price," Finley says. "They were able to argue 'we can get a better deal,' and they did. It's ultimately a victory for BEA."

It's also a good deal for Oracle, despite the extra $1.8 billion BEA extracted from the suitor, says Mike Gilpin, a Forrester analyst. BEA's middleware is well-known for handling mission-critical applications and high-volume workloads, so customers will often choose BEA over the less-expensive IBM WebSphere application server, Gilpin says.

IBM nonetheless stands to benefit from the Oracle/BEA deal, Finley says, because of customer uncertainty over the status of Oracle and BEA products, and the fact that two competitors are being reduced to one.

BEA's product lines include AquaLogic, software to help develop and manage SOA components, and other products to integrate, secure and govern the services deployed in an SOA. BEA also makes the WebLogic platform, a set of products including an application server, integration tools and a portal.

BEA customers naturally will worry that Oracle might slow down the rate of BEA enhancements, essentially forcing them to move to Oracle Fusion middleware, says James Kobielus, a Forrester analyst. Another analyst firm, CMS Watch, says BEA and Oracle customers can expect major product shifts, as there are now four overlapping enterprise portal products that have to compete for Oracle CEO Larry Ellison's attention.

Still, Finley says he doesn't expect a wholesale attack on the BEA product line from Oracle management. For one thing, Oracle learned a valuable lesson from the PeopleSoft acquisition, when it faced a customer revolt after declaring it would kill off the PeopleSoft product and move customers over to software developed by Oracle, Finley says.

Although Oracle and BEA have overlapping middleware technology, there also are complementary aspects to the acquisition that will let BEA offer a more complete SOA picture to customers, Kobielus says. "They realized they don't have a full SOA stack," he says of BEA. "A lot of the things Oracle offers really rounds it out. They lack data warehousing and master data management."

Perhaps most importantly from the SOA perspective, the merger gives BEA customers easy access to Oracle business intelligence tools, a key component of SOA, he says.

"I kept speculating, BEA will either acquire a [business intelligence] vendor or be acquired by one," Kobielus says.

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