It's retrograde, but highly lucrative and canny for Larry Ellison, Oracle's pragmatic CEO. But in no way does the strategy's success undercut one of the fundamental trends in software - to a service-delivered model over the Net.
Meanwhile, Sun is staking its claim on the other massive trend in software - open source. MySQL, the company it bought, is tiny by revenues but huge by influence. Over 100 million copies of MySQL's open-source database software code have been downloaded for free since the product was first released in May 1995. Tens of thousands of businesses rely on MySQL's software.
(I wrote about MySQL in Interestingly, way back then Sun's then-CEO Scott McNealy recommended it. MySQL also figured in a longer article called
In buying a company that gives its software away, Sun is betting its $1 billion that more and more users will find it advantageous to pay money to insure that software works smoothly.
Sun's commitment to open source has been steadily growing in recent years. While it remains primarily a hardward company by revenues, it is the services that come along with software that it now seeks for longterm revenue and growth. Its most dramatic move was to release a free open-source version of its crown jewel Solaris operating system. Here's how CEO Jonathan Schwartz describes Sun's approach in his : "first investing to grow communities of users and developers, and only then creating commercial services that attract (rather than lock in) paying customers."
Oracle, on the other hand, is one of the three big companies selling conventional commercial database software. The others are IBM and Microsoft. All three have for some time eyed MySQL with alarm. Up to now the pipsqueak open-source database it makes has generally not displaced the big artillery. But with Sun's backing, the chances improve that it will. Largely because customers can modify MySQL's open source database, it has already been given industrial strength by customers like Google and Yahoo (
But Oracle ( revels in its status as old guard. In addition to its databases, it continues to accumulate companies and products in enterprise software that embody neither of the industry's current trends of open source or software-as-a-service. This is not because Larry Ellison doesn't understand what's going on. In fact he just made a big killing when software-as-a-service company Netsuite went public. He funded and nurtured this company for years, separate from his work at the helm of Oracle (though the contrast has not been lost on some quizzical Oracle shareholders).
Nonetheless, Ellison and Oracle have in recent years acquired conventional enterprise software companies including Peoplesoft, Siebel Systems, and now BEA, one of the largest corporate infrastructure software players. Customers of such products continue to pay for services and support many years after they buy the product, so companies like these bring with them annuity revenue.
There are numerous common elements between the Oracle/BEA deal and the Sun/MySQL one, despite the strategic disparities. Both companies are ultimately interested not so much in revenues from selling software as from services and support. Both of these deals represent a way to acquire customers by acquiring the company that serves them. Both aim to sell these new-found customers other products.
Sun and Oracle are thus becoming more alike. And in doing so they are both emulating IBM ( Its results, also announced this week, explain why they would want to.
When Lou Gerstner was IBM's CEO, he made a historic shift of the company's energies towards services. That proved prescient. Now the resulting lucre is flowing in. About half of the recent quarter's $28.9 billion in revenues were from services, which in themselves grew a stunning 17 percent year over year. The profits from those services grew even faster.
IBM's services-centric strategy has been right for years. Oracle got on board a while back, and its results have been on fire. Now Sun, so lately the wounded child of computer companies, has, so to speak, finally seen the light.
