With rumors of an IBM acquisition still swirling, early this morning Oracle announced that it is acquiring Sun for roughly $7.4 billion. From a CNET article:

Oracle and Sun announced Monday that they have entered into a definitive agreement under which Oracle will acquire Sun common stock for $9.50 per share in cash. That puts the value of the transaction at about $7.4 billion, or $5.6 billion net of Sun’s cash and debt.

We expect this acquisition to be accretive to Oracle’s earnings by at least 15 cents on a non-GAAP basis in the first full year after closing. We estimate that the acquired business will contribute over $1.5 billion to Oracle’s non-GAAP operating profit in the first year, increasing to over $2 billion in the second year. This would make the Sun acquisition more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft and Siebel combined.

To me, IBM seems like a better fit for Sun and this acquisition leaves as many questions as answers. While Oracle recently announced a hardware product line in a partnership with HP, do they really want to be in the hardware business themselves? A few years ago Larry Ellison definitively said they did not want to be in that business. With much of Sun’s revenue coming from hardware, will they spin that division off or use it to focus more on a complete Oracle stack, that includes everything from hardware to database. Moving to the individual parts of that stack, will Oracle continue with the Sparc CPU line or be interested in the more commodity x86 lines. At the OS level, will Oracle continue to focus on Linux and their Unbreakable implementation or will they attempt to keep Solaris alive. Oracle has been contributing to Linux in a significant way recently, and it would be a huge loss for that to go away IMHO. At the recent Linux Foundation summit Oracle touted that it views it’s upcoming btrfs filesystem as superior to ZFS. What does the future hold for projects such as that?

That brings us to MySQL. I’d contend that MySQL is “worth” more to Oracle than it is to any other company (including IBM) and here’s why. To most other companies, MySQL is roughly worth the net present value of future projected MySQL revenue. The thing most people don’t understand about the MySQL/Oracle relationship is that for many small to medium commercial projects, MySQL is “good enough” and has a much lower TCO than Oracle. Even so, many companies didn’t actually want to go with MySQL for a variety of reasons (many political and procurement related). This created a situation where the *option* of MySQL effectively capped the price people would spend on low end Oracle projects. It wasn’t just the number of people actually leaving Oracle for MySQL, it was the number threatening to and getting additional (and sometimes steep) discounts on Oracle as a result. This creates a premium to Oracle that no other company would have been able to extract. What this acquisition means for the long term future of MySQL within Sun is unclear to me. Oracle has owned InnoDB for a long time. This could either be a long overdue reunion of Inno and MySQL, or the beginning of a slow death for MySQL. One where Oracle doesn’t overtly kill the project, but deprecates any features it sees as threating to its main cash cow and relegates MySQL to a web-only type product. On a related note, the acquisition almost certainly means the end of Postgres support within Sun.

It seems one piece that will certainly benefit from the acquisition is Java, although I’d imagine that IBM is not too happy that Oracle now “owns” Java. Eclipse might have to change it’s name now Also, the rivalry between Larry and Bill Gates is well known. Does this mean that Oracle will be interested in funding addition OpenOffice.org development even thought it’s *way* outside their normal target market?

In the end, Oracle is one of the best acquisition machines on the plant. They have been purchasing and integrating companies for a long time. They’ve become very good at it. However, most of the companies they have acquired have been very specific targets in niche markets that aimed to fill a perceived gap in Oracle’s offerings. Sun is not that. They are a huge company with a massive product line that spans hardware and software. This is not the average Oracle acquisition and the decisions Oracle makes will have massive implications not just for Open Source but for the entire IT industry.

–jeremy

(Note: Interestingly, the Oracle press site has been down with a “Server is too busy to handle request” for the last 30 minutes. I’ll update the first link in this post as soon as it’s back up. Until then, here’s a NYT article.)

[Updated] Additional links:

Glyn Moody
Matt Asay
Larry Augustin