Ellison suggests rationale for JBoss acquisition

Oracle’s plans to buy JBoss were still only a rumor Monday morning, but Oracle CEO Larry Ellison has already offered plenty of hints why the deal might make sense.

Open source software attracts developers, and more developers could lead to more sales of Oracle products when deployment time comes around, Ellison said at the Credit Suisse software conference in California last week.

What’s more, the JBoss application server is based on the same Java standards as Oracle’s application server, which means Oracle can sell related software, such as identity management and integration products, to customers using JBoss software, he said.

“Rather than fight this open source trend we think it’s important to figure out ways to make it work to our advantage,” Ellison said at the Credit Suisse event, which was Webcast.

Those ways include buying open source vendors, according to published reports. BusinessWeek reported last week that Oracle is in talks to buy JBoss and two other open source companies: Zend Technologies, which develops the PHP Web development language, and Sleepycat Software, which offers a transactional Java database.

The JBoss deal could be announced as soon as Monday, according to other reports citing unnamed sources. Oracle and JBoss were said to be haggling over the acquisition price, with Oracle offering $200 million and JBoss seeking twice that much, the reports said. Spokespeople at Oracle and JBoss declined to comment.

Without confirming any specific plans, Ellison said last week that Oracle will make acquisitions to boost its position in the middleware market, where it competes primarily with IBM and BEA.

Oracle buys companies only when they’ll make it the leading player in a market, or a close second, he said.

“If we are playing in middleware, we feel we have to be the No. 1 player, so you’ll see us do a variety of things to get into that No. 1 position, and that includes acquisitions,” Ellison said.

Developers find it fast and easy to use open source software because they can download it for free without going through a procurement process, he said. “Then, during deployment, if they want to upgrade to a system that’s faster or has better security, they can do that by buying Oracle’s for-purchase products,” Ellison said.

Other big vendors are also offering free and open source products to strengthen their hands at the low end of the market and to build a bigger developer base.

Last year, IBM bought Gluecode Software, which offers an open source application server based on the Apache Geronimo project, while Sun Microsystems Inc. has long offered a free version of its Java middleware, as well as source code for other products. Oracle itself has announced a free, low-end version of its database software.

The moves “all seem to have the aim of maximizing the number of developers that can be brought on board, with the expectation that revenue in one form or another (license, maintenance or support) will be a by-product of building the developer base,” said Rob Hailstone, an IDC analyst, in an e-mail Monday.

Buying open source companies would be less risky for Oracle than offering its existing products for free, which could cannibalize its revenue from other products, he said.

Oracle thinks its own application server is faster and more secure than that of JBoss, but the JBoss software is “just fine” for some applications, Ellison said. And because many application servers are based on the same Java standards, including those from IBM and BEA, “that puts us into direct competition with open source,” Ellison said.

“So our view is that rather than fight this trend, we’ve architected our middleware so we can unplug our Java container and use JBoss. … We can mix and match our middleware stack with open source components, so that customers get to choose what Java container they want to run,” he said.

Oracle can still sell other products around the application server, he said, including its identity management and business process management products.

Offering open source software fits with another change under way at Oracle: encouraging more customers to pay on an “all you can eat,” subscription basis, and deemphasizing new license fees, which have declined over the years as the database market matured.

“More and more we’re trying to turn our largest customers into ‘all you can eat’ customers” that can use unlimited database software for a fixed fee each year, Ellison said. “That’s very different from Oracle 10 years ago.”