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Volume 5, Number 2 -- January 17, 2008

Sun Casts a $1 Billion Net to Catch MySQL

Published: January 17, 2008

by Timothy Prickett Morgan

The 2008 IT market was looking a little boring so far this year, but server and operating system maker and software powerhouse wannabee Sun Microsystems woke everybody up early Wednesday morning with the news that it would spend $1 billion to acquire open source database maker MySQL. This is arguably one of the smartest moves Sun has made in a decade, and probably rivals the decision it made in the mid-1990s to buy the carcasses from Thinking Machines, Kendall Square, and the Cray Sparc-based server business.

That is a qualified "probably" because Sun's early embrace of Internet technologies, RISC processors, and Unix software--which it helped make industrial grade--are the things that put Sun on the map as a technology leader. Buying those server carcasses gave it some hot engineering with which to attack the dot-com bubble, which made Sun a data center name (but not quite a household name) and which also made Sun's stock price shoot through the stratosphere as its sales grew enormously in the late 1990s and into 2001. Java may have made Sun famous to a certain extent, as well as making it a thought leader in application development and giving it some licensing royalties and dough from lawsuit settlements with Microsoft. But the acquisition of MySQL and its eponymous and wickedly popular relational database software will give Sun something it truly craves: a vast installed base of potential customers. More than 100 million instances of MySQL's databases have been distributed to date (with approximately 10 million of them still running), and the download run rate with the current MySQL 5 product is on the order of 50,000 per day right now.

It seems like it was only a matter of time before someone would catch MySQL, whose corporate logo is a dolphin, in a net. In early 2006, just a few months after MySQL got its first enterprise-class product, MySQL 5, to market, the rumblings on the street were that Oracle was getting ready to acquire MySQL and JBoss, a supplier of popular open source middleware, but it turns out that commercial Linux distributor Red Hat acquired JBoss and now Sun is buying MySQL. MySQL would have fit nicely with Hewlett-Packard's expanding software business, or with the database businesses from IBM or Oracle. If the MySQL product were not open source, Microsoft probably would have long since acquired MySQL. (Think of the GNU General Public License that governs a lot of open source software development and distribution as Microsoft repellent.) But, in the end, provided someone doesn't swoop in and offer a lot more money to the privately held MySQL, Sun will own the company sometime in March or April of this year--late fiscal Q3 to early fiscal Q4 to be specific about what Sun told Wall Street Wednesday morning.

MySQL was initially the brainchild of Michael Widenius, who is still at the company as a co-founder and research fellow, as is the other founder of the company, David Axmark, a developer who has been involved with open source and database software since the 1980s. The company's current chief executive officer is Marten Mickos, who was brought in to run the company in 2001; its chairman is Kevin Harvey, a general partner at Benchmark Capital, one of MySQL's biggest investors. It soon became obvious that MySQL was part of the evolving Internet application build out during the dot-com boom, and we even invented an acronym to show how popular it was: LAMP, short for Linux (operating system), Apache (Web server), MySQL (database), and Perl-Python-PHP (programming languages used to glue Web applications to the database). In the early 1990s, the company was able to secure $39.5 million in venture capital funding, and established a second headquarters in Cupertino, California, to be closer to its investors and its customers than was possible from Uppsala, Sweden, where it was founded.

MySQL is a great catch for Sun, and a far better long-term investment than the $4.1 billion it spent to acquire tape and disk array maker Storage Technology in June 2005. The strategy behind the deals--to get a large base of customers--is much the same, as is the hyperbole.

"We're putting a billion dollars behind the M in LAMP," said Jonathan Schwartz, Sun's president and chief executive officer, and Rich Green, the general manager of its Software group, in a call with Wall Street as well as in Schwartz' blog entry on the deal, entitled Helping Dolphins Fly. How about teaching Network the Dog some English? (Remember Network from all the Sun ads the pre-dot-com days?) Sun is not putting $1 billion behind anything, except the back pockets of the owners of MySQL, who will take that money and do whatever they please with it. (Buy euros or barrels of oil is my best guess.) What Sun will then have to do is actually put further funds into the further development and expansion of the MySQL support business that the database maker has done a good job with on a shoestring budget--relative to the kinds of investments that a tier one platform vendor like Sun can do, it has been a shoestring, even with venture capital coming in.

MySQL has over 400 employees, and presumably they will all be coming aboard Sun. MySQL is a privately held company, but Wall Street analyst Toni Sacconaghi of Sanford Bernstein said in his question to Schwartz that he reckoned MySQL had trailing 12-month sales of between $60 million and $80 million and was running at about breakeven. (Those sales are a tiny portion of the $15 billion database market.) Sun is agreeing to pay $800 million in cash and to assume the responsibilities of $200 million worth of stock options. So if you just count the cash, Sun is paying a multiple for MySQL of between 10 and 13 times revenues to get the company. This is a lot less than the 500 to 1 ratio Citrix Systems paid to acquire open source hypervisor maker XenSource last summer, or the market cap to revenue ratio of VMware, which stands at around 25 to 1 if you assume VMware will break $1.2 billion in sales in 2007.

There is little question that the MySQL database business can be improved by being a part of a much larger company with a worldwide reach and an established track record in the data center. Sun certainly fits that bill. And Sun has returned to its open source roots in recent years, having open sourced its key software, such as Solaris and Java, and even processor designs. So MySQL and Sub are a good ideological fit, too. But it is going to take time for Sun to get its bait back on the MySQL deal; the return will not be anywhere as fast as we will see with virtualization software such as that from XenSource and VMware. MySQL has a vast installed base, but contrary to Schwartz' main contention as Sun has taken its software open source over the past several years, most of MySQL's customers do not pay for support. And thus far, most people downloading those 12 million copies of Solaris have not paid for support, either, by the way. What will be equally frustrating for Sun is that while around 20 percent of MySQL downloads have been for Solaris, the vast majority--neither Schwartz nor Mickos would be precise--are on Linux servers, with a large presence for Windows boxes and a smattering of Mac OS.

That said, Sun believes that the main impediment to the uptake of MySQL has been the fact that it is not controlled and supported by an IT player with a global reach. "We can deliver that peace of mind, and that is exactly what we will be focusing on as we bring the two companies together," explained Schwartz on the call with analysts and journalists. That was the plan when Sun backed the open source PostgreSQL as a bundled part of Solaris 10 back in the summer of 2006, including support from Sun. MySQL is just so much more popular than PostgreSQL, particularly after it went relational with the MySQL 5 release. (Earlier MySQL databases had a non-relational data store.) Sun said that it remains committed to PostgreSQL as well as the JavaDB (also known as Derby) open source database, which is popular for developers; proprietary databases from Oracle, IBM, and even Microsoft cannot be ignored, either. But there's no question that Sun will put a lot of its weight behind MySQL now.

Mickos will be staying on at Sun, steering the MySQL business and reporting to Green. Mickos will also be joining Sun's executive management group, which is comprised of the top 50 executives at the company who help Schwartz run Sun.


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TABLE OF CONTENTS
Sun Casts a $1 Billion Net to Catch MySQL

HP Revamps ProLiant Rack and Tower Servers with New X64 Chips

IBM Gets Clustered Storage and EMC Founder with XIV Buy

As I See It: Weighty Matters

Intel Launches White Box Blades as New York State Probes

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BEA Systems Finally Says Yes to an Oracle Buy . . . Sun Pre-Announces Flat Sales, Higher Profits for Fiscal Q2 . . . Surprise, Surprise: Java Coders Don't Know Jack About "Real" Programming . . . Parallels Server Goes Beta as SWsoft Hires Microsoft Uber-Techie . . . Lawson Grows Sales by 18 Percent in Fiscal Q2 . . .

The Unix Guardian

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