Business Tech

Oracle has much to say to Sun Microsystems customers in a front-page advertisement it placed in Thursday's European edition of The Wall Street Journal.

The advertisement commits to greater investments in Sun hardware and Solaris software, but has absolutely nothing to say about MySQL. Is this a necessary omission to appease European regulators, or is it a sign of Oracle's intentions?

In the advertisement, Oracle commits to the following:

(Credit: Oracle)

IBM, which has been cleaning up at Sun's expense, gets a warning from Oracle CEO Larry Ellison: "We're in it to win it. IBM, we're looking forward to competing with you in the hardware business."

Sun's business has tanked in the ongoing uncertainty over Oracle's takeover bid. The advertisement is clearly intended to placate customers that might otherwise flee to the apparent security of a relationship with IBM or Hewlett-Packard.

It's interesting, therefore, that Oracle gives no assurances about MySQL. This could simply be a politic action designed to sidestep the ire of the European Union, which has been investigating the effects an Oracle acquisition might have on Sun's MySQL business.

Or it could simply be a recognition that assuaging the fears of MySQL's customers is a comparatively unimportant task. MySQL was doing roughly $100 million in sales at the time Sun acquired the company. Given that Sun stands to lose billions in its hardware business the longer the Oracle bid drags on, losing a few tens of millions from MySQL is pocket change.

Besides, it's not at all clear that Oracle's decision to snag Sun has done anything to slow MySQL adoption. A vocal minority within the open-source development community has wrung its hands over the deal, but I've yet to hear MySQL's customer base, which skews toward the technology-savvy Web crowd, fretting about Oracle's impact on MySQL's business.

Oracle's advertisement is designed to shore up confidence in the CIO crowd that still buys Sun and probably has no clue that their organizations are running MySQL throughout the enterprise. At some point they'll know. But by that time, Oracle's acquisition of Sun should be complete.

Follow me on Twitter @mjasay.

Neelie Kroes

(Credit: European Commission)

IBM and Hewlett-Packard could not have planned it any better.

The European Union has launched an in-depth investigation into Oracle's acquisition of Sun, potentially delaying the merger by several more months. In doing so, the EU is actually guaranteeing the demise of Sun's hardware business and gifting it to Sun's competitors by misunderstanding the deal's impact on open source, generally, and on MySQL, specifically.

If you haven't been paying attention, the delay on the merger due to U.S. and EU scrutiny has already resulted in two shockingly bad quarters from Sun. Many enterprise customers are already moving to competitors like IBM because of the uncertainty surrounding the future of Sun products, The Wall Street Journal reports.

Further delay will only compound the problem.

Unlike the U.S., which approved the deal, the EU's Competition Commissioner Neelie Kroes is concerned that Oracle's takeover of Sun will end up diminishing competition:

Systems (like MySQL) based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available.

The Commission doesn't have to. MySQL's open-source license already does. It's open source: even Oracle can't put the open-source genie back in the bottle once it has been released, as MySQL has, under the GNU General Public License.

Consider: some of the folks cheering loudest for the EU to clamp down on the proposed merger, like representatives from Monty Program, have already demonstrated Oracle's (and Sun's) lack of control over MySQL. Monty Program has created a significant fork, or derivative, of the MySQL database, and stands to gain much by the EU's obstructionism.

In delaying the merger, the EU isn't helping MySQL. It's helping its competitors, including Drizzle, OurDelta, MariaDB (Monty Program's fork), Percona, etc.

Competition within and around MySQL is alive and well, regardless of Oracle. After all, as former MySQL CEO Marten Mickos has been saying for years, MySQL has never really competed with Oracle, anyway. MySQL serves (and has helped to create) a very different market: the Web database market.

When asked in April if Oracle's bid for Sun would end up hurting MySQL, Mickos responded: "MySQL works for Web-based applications. Oracle is for older, legacy applications." The vast majority of Oracle's revenue comes from enterprise IT. The vast majority of MySQL's revenue comes from Web companies like Facebook, Google, etc.

MySQL and Oracle don't really compete. They live in two very different markets.

So, if anything, Oracle's acquisition of Sun helps it leverage MySQL into a market--the growing Web database market--that its own technology is ill-equipped to manage. It also gets a lower-cost product with which to bludgeon its real enemy, Microsoft, coupled with a greater footprint in the rising open-source developer community.

Open source is not the enemy in this deal. Microsoft is.

The EU, however, has made itself an enemy to Oracle, Sun, and MySQL by holding up the merger, a situation that will only get worse due to its glacial pace, as CIO.co.uk's editor Martin Veitch suggests. Customers are not the beneficiaries of its intervention: Sun's server competitors like IBM are.

Though the EU purports to be in tune with open source, its meddlesome muddling reveals a surprising ignorance of open source, and shows a complete disregard for MySQL's true market opportunity.

UPDATE @ 6:59 Pacific on 9/4/09: I solicited comment from Gartner vice president and Distinguished Analyst, Donald Feinberg, who had this to say:

The EU does not understand open source. This is clear by using DBMS (MySQL) to extend the deadline. It also is clear that this is an attempt to use MySQL as a cover-up to a political agenda. It is protectionism at its worst.

The EU is entering deep water here, water that it clearly does not adequately understand.

Follow me on Twitter @mjasay.

SpringSource announced Monday its acquisition of Hyperic, a move that signals a new phase of commercial open-source competition.

Until recently, open-source vendors like SpringSource seemed content to play the low-cost commodity foil to the broader product portfolios of their proprietary peers. No more.

SpringSource, the company behind the Spring Framework, the leading open-source application framework for Java, has been nudging beyond its roots for some time. Most recently, SpringSource announced commercial support for Tomcat, arguably the world's most prevalent Java application server. It has also released tools to expedite and facilitate the development of Java applications.

In these ways, it has continued its march toward a more complete Java development model and, in the process, has girded its ability to monetize the otherwise free and open-source Spring Framework. With over half the Fortune 2000 as users of the Spring Framework, it is this ability to turn users into paying customers that has been perhaps most critical to SpringSource's product plans.

With Hyperic, SpringSource completes its vision to provide a "complete suite of software products that accelerate the entire build, run, manage enterprise Java application lifecycle," and moves from framework provider to a true solution provider--one that competes directly with IBM and Microsoft.

The acquisition of Hyperic cements a longstanding partnership between the two companies. SpringSource has been OEM'ing Hyperic's technology since 2007. By acquiring Hyperic, however, SpringSource makes it possible to fully manage the applications that its customers build using the Spring Framework.

As Javier Soltero, CEO of Hyperic, told me in a phone interview:

The SpringSource philosophy has always been about making it easier to build enterprise-grade Java applications. But the pillar of this acquisition is about offering the full application lifecycle: build the applications, run those applications, and then manage those applications using Hyperic.

This is more than a marriage of code. It's about merging the best people in IT management with the best in Java application development. It gives us broader and deeper visibility up and down the software stack and across a company's network and data center, including virtualization and cloud computing environments. It means that we've just reduced and, in some cases, eliminated the gap between application development and IT operations.

Soltero will become CTO of management products with SpringSource.

I asked Soltero about speculation that this acquisition was simply the fulfillment of a whim on the part of Peter Fenton of Benchmark Capital, a Silicon Valley venture capitalist who has invested in both SpringSource and Hyperic and is an active investor in a range of open-source companies. As Soltero explained it, while "Benchmark is of course happy with the combination," it was not involved in promoting it and, for legal reasons, could not be involved.

Regardless, the SpringSource/Hyperic combination creates a clear and present danger to IBM and Microsoft, two companies that have largely stood alone in the ability to build, run, and manage applications. It's also a significant boon to companies looking to open source to save money and improve productivity.

Is it a sign of good things to come from not only SpringSource, but also open source, generally? Time will tell, but I suspect we're on the cusp of an aggressive and ambitious new phase in open-source competition.

Follow me on Twitter @mjasay.

Technology M&A deals fell 17 percent to 3,751 transactions in 2008 over the previous year, according to a report released Friday by ICON Corporate Finance. But small technology deals of under $100 million fared better, posting only a 15 percent decline.

These smaller deals, which account for 95 percent of all IT mergers and acquisitions, are expected to show more resiliency in weathering the tough economic storm, given they tend to be funded through the buyer's cash flow, rather than the tight credit markets, according to the reports.

Larger IT deals upward of $1 billion posted a 36 percent drop last year over the previous period, while acquisitions in excess of $1 billion posted a substantial 51 percent drop.

And while the economy is anticipated to have even greater challenges in the first half of this year, ICON noted it remains guardedly optimistic that tech M&A will not wither away.

With the sector remaining fragmented, buyers with cash on hand may look to M&A to consolidate and improve their efficiencies, the report noted. And it reiterated that the vast majority of deals are under $100 million and done with the buyer's existing cash flow.

Industry sectors that have retained their allure as buyout targets include mobile software, financial software, VoIP, storage and networking, security, online payments, virtualization, green tech, and online advertising companies, according to the report.

The traditional media world, meanwhile, is undergoing a transformation when it comes to M&A deals, according to a report released earlier this week by the Jordan, Edmiston Group (JEGI).

According to the report, media mergers and acquisitions are shifting away from buyers snapping up traditional media companies to ones that involve growth markets, such as database information, business-to-business online media, consumer online media, and interactive marketing services.

According to the JEGI report:

This transformational shift and retooling of the media industry from traditional businesses to digital and data-driven revenue streams, which began in earnest in 2007, is ongoing and continues to gain force. As a result, the number of M&A transactions was close in 2008 to 2007, but the "center of gravity" has shifted from larger traditional media deals to midsize digital and data deals.

For example, M&A deals involving media, information, marketing services and related technologies fell 13.1 percent to 758 deals last year over the previous year, while the value of those deals plunged 68.1 percent to $33.3 billion.

Deals involving database information services, however, shot up 77 percent to 46 deals last year, compared to the previous period. Some of those deals included the $96 million acquisition of JupiterImages by Getty Images.

The marketing and interactive services sector was down a slight 1.5 percent to 258 deals last year, over the previous year. JEGI expects, however, some interesting M&A deals to arise this year, as the pullback in advertising takes its toll on media companies.

TechFlash is reporting that EMC has purchased SourceLabs for an undisclosed fee. The unanswered question in TechFlash's report is why EMC would buy SourceLabs, a provider of support tools for Linux and other open-source software.

It's not that SourceLabs isn't a good company. I have followed SourceLabs since its inception, meeting with founder and CEO Byron Sebastian back at OSCON (in 2003) before the company was founded in 2004, and spent some time in the SourceLabs office in 2004 getting a demo of its technology. It was cool back in 2004, and has improved since then.

In addition, SourceLabs has managed to pull in some big-name customers like Fidelity and Merrill Lynch, demonstrating that it offers real value to real customers. Unlike some competitors like Spikesource, SourceLabs focused early on big enterprise needs and arguably did a better job of tailoring its products to meet those needs than its competitors, notwithstanding its share of financial struggles, which TechFlash details.

No, my question is what EMC, largely a provider of storage solutions, gets from a relatively broad-based open-source support technology company. TechFlash points to Swik.net, SourceLabs' open-source news and information repository as a source of value for the company, but I'm guessing that EMC didn't buy SourceLabs for Swik.net, given that the company had been contacting potential buyers just a few weeks ago to gauge interest in buying Swik.net, likely because EMC wasn't interested in that part of SourceLabs' business.

No, I don't think EMC is interested in an open-source community site, but it's clearly interested in the core SourceLabs technology. I'm struggling to understand the fit. Is EMC hoping to tap into expertise in various open-source technologies? If so, to what end?

I've asked SourceLabs' executive team for comment but, in the interim, anyone care to venture a guess as to what EMC is hoping to get from SourceLabs?

Update 11:50 a.m. PDT, with additional M&A data from investment banking services firm The Jordan, Edmiston Group.

Tech mergers and acquisitions took a dive in the third quarter, with spending falling by a third compared with the same period last year, as Wall Street investment banks and financial institutions were rocked to the core, according to a report released Wednesday by The 451 Group.

Tech deals fell to 691 transactions with a total value of $37 billion in the third quarter, down from 822 deals and a value of $58 billion a year ago. That marked the second consecutive year that third-quarter M&A activity declined.

According to Brenon Daly, a financial analyst with The 451 Group:

There are a number of reasons for the muted deal flow, starting with the barren conditions in the credit market. That knocked the number of leveraged buyouts from 36 during the third quarter of last year to just 12 this year. And while the private equity firms have billions in equity capital, they have been holding onto it tightly--even as some tech companies across the board have seen their valuations cut 20-30 percent.

Private equity firms weren't the only ones holding back. Technology titans known for their use of strategic acquisitions also curtailed their activity during the third quarter, according to the report. Google, which has seen its share price take a tumble, signed off on four deals since the start of the year, compared with 14 transactions during the same period a year ago.

And IBM, meanwhile, has only acquired one company this year, compared with three companies within the same time period last year.

Buyers are also scaling back on the amount they're spending on a per deal basis. During the quarter, only six deals worth in excess of $1 billion were announced in the September quarter, compared with 11 such deals in the previous year and 22 deals in the same period in 2006, according to the report.

Advisers to prospective buyers are shaken because of investment companies like Lehman Brothers and Merrill Lynch disappearing off Wall Street to financial institutions like Washington Mutual, the nation's largest thrift, having to find a buyer themselves.

Daly noted in his report:

Besides the uncertainty concerning the advisers that help support the transactions, there's also doubt about the institutions themselves right now, which complicates deals. Consider the highly unusual step taken this week by JDA Software to shore up confidence in its ability to pull off its planned $461 million acquisition of supply chain management vendor i2 Technologies. The company issued a press release confirming the commitment of its financial backers to finance the deal, as it added another bank to the syndicate. (The market began to bet against JDA's ability to finance the planned deal because Wachovia, an ailing bank that eventually got sold to Citigroup, was one of the two banks on the ticket to provide the debt. Wells Fargo has since been added.)

And as the fourth quarter begins, the outlook for the full year is one that is expected to post a drop in M&A spending--which would end four consecutive years of annual increases.

Meanwhile, investment banking services firm The Jordan, Edmiston Group on Wednesday issued its nine-month M&A report that reflected growth in the number of deals among some technology-related sectors but steep declines in the valuations of those deals.

Within the database information services sector, the number of deals rose to 36, up 63.6 percent compared with the same period a year ago. However, the value of all deals dropped nearly 60 percent to $8.6 billion.

The marketing and interactive services sector was hit with a similar situation, where the number of deals rose to 205, up 13.3 percent, while the value dropped 64 percent to $7.3 billion.

The online media and technology sector, however, posted a decline in both the number of deals and value during the past nine months, according to the report. M&A deals in this sector fell 6 percent to 218 and the value dropped 6.9 percent to approximately $7.7 billion.

Troubles at two major Wall Street securities firms Monday will have ripple effects that could stifle mergers and acquisitions in the technology industry and further dampen the market for initial public offerings.

Or so say financial pundits who are examining the potential fallout of Lehman Brothers' bankruptcy and the $50 billion sale of Merrill Lynch to Bank of America in order to avoid its own financial crisis. Venture capital and finance experts compared the news to the late 1990s when the Big Eight accounting firms shrunk to the Big Four. Consolidation and financial uncertainty at the nation's largest securities firms will close some doors to tech companies aiming to go public, slow the process for M&A deals, and generally add more worry lines to tech investing.

"There's just a lot more uncertainty around getting mergers and acquisitions done that are really the life blood of tech financing," said Colin Blaydon, director of the Tuck Private Equity and Entrepreneurship Center at Dartmouth University.

The changes on Wall Street caused the worst investor sell-off in seven years. On Monday, the Dow Jones industrial average dropped by more than 500 points (a 4.4 percent drop), its biggest decline since the terrorist attacks of September 11. The Nasdaq composite index fell by more than 80 points for a 3.6 percent decline.

2008 has already been a tumultuous year in the securities market because of ongoing effects from the mortgage credit crisis. But specific to the tech industry, investors say the market is being squeezed by fewer opportunities for exits from public offerings and buyout deals. Large tech companies are also taking a more cautious approach to M&A, and that's causing valuations to fall. Now, with fewer healthy investment banks, which handle about three quarters of the country's venture-backed exits, it will be harder to ink a deal.

"An oligopoly is not the best thing for the American capital system. When you have so few investment firms out there, it makes it difficult to get a deal at the end of the day," said Mark Heesen, president of the trade group National Venture Capital Association.

Heeson said he's particularly concerned about the likelihood of fewer quality acquisitions. In the last eight years of acquisitions, he said, there have been about 350 acquisitions every year. (Right after the tech bubble, those numbers held up mostly because of fire sales.) But now, those figures are dropping. In 2007, the NVCA reported 355 venture-backed mergers and acquisitions. In the first half of this year, however, it has counted 120.

"Cisco, Intel, let's say they bought 15 companies last year. This year, they may only buy eight. That's impacted by the stock market because they have less money to invest," Heeson said. "When a VC invests in a tech the ultimate goal is for that company to go public or get acquired. What happened today in a very unsettled market is it will now be even harder to go public than it has been. That will affect small tech companies for at least the next six months."

Early stage venture deals shouldn't be altered by Monday's events, however. There are still a lot of growth-industry investors with a large amount of capital, and they will find it appealing to invest in smaller companies because valuations will be lower.

Early stage investing also doesn't typically require investment banking or M&A support. But for later-stage financing or mid-cap buyouts, when deals get more complicated, that's when tech M&A bankers show up. With deals that require multiple bankers, all parties involved will likely exercise more caution.

"M&A transactions take a period of time to get done, and if anyone at all is concerned about the financial strength of any of the parties, those transactions will be harder to get done," Blaydon said. In the last three weeks, Lehman Brothers was pushed out of several transactions it was selected to be a part of, for example.

Short term, venture experts don't expect much fallout to venture investing, which typically hits between $7 billion and $8 billion each quarter. Despite the IPO market, investment dollars have held steady. But analysts say that over time, as these companies can't go public or get acquired, early stage companies could suffer because venture firms must put extra dollars into late stage companies.

The U.S. is already in the midst of an IPO crisis, and Monday's events added to the problem. According to the NVCA, only six venture-backed companies have gone public so far this year; and for the first time in 30 years, no VC-funded company went public in the second quarter. In a good year, about 100 venture funded companies go public.

"What would have happened if Dell or Google or Amazon or eBay didn't go public? Think of all the jobs that would have been lost. From an economic standpoint, we'd like to see many more IPOs and fewer acquisitions," said Emily Mendell, vice president of strategic affairs at the NVCA.

As a result, the NVCA wants to encourage the growth of small boutique firms like Jeffries or Piper to help save the tech IPO. The trade group is meeting this fall with industry leaders to discuss options.

Geoff Yang, a partner at venture firm Redpoint Ventures, said problems at the investment banks will affect capital markets and investor confidence. He said he's already seen some buyers put buyout deals on hold because their company stock prices are down, causing some of the more capital-intensive deals to seize up.

"For a lot of these Internet businesses that don't take much capital, they're less affected," said Yang. "But for anything that is capital-hungry like the energy market, they're definitely going to feel the effect. For those companies to succeed, we need a vibrant capital market."

I thought business was supposed to slow down in the summer. I guess not. First Brocade Communications Systems buys Foundry Networks. Then last week, Siemens sold off 51 percent of its Siemens Enterprise Communications (SEN) division to the Gores Group, which will combine this entity with Enterasys Networks. McAfee then closed last week with its acquisition of Reconnex.

The combination of SEN and Enterasys was clearly a push for scale. Enterasys is actually one of the best-kept secrets in enterprise networking, with a full line of switching, routing, and security products. Combined with Siemens voice and unified communications products, this new entity may be positioned to compete with Cisco Systems on the new "triple play" networking front (i.e. voice, video, and data). A tough road for sure, but it seems clear that scale matters in networking and the combined entity now boasts global operations and multibillion dollars in revenue.

As for the other deal, McAfee gets a data loss prevention technology leader at the network to complement its existing endpoint offering based upon its Onigma purchase in 2006. While Reconnex doesn't have the market swagger of Vontu, McAfee paid $46 million while Symantec forked over $350 million for Vontu. With Reconnex, Onigma, and SafeBoot in tow, McAfee has a trifecta to approach the data privacy/security market.

Hmm, all this activity and it's only the beginning of August. There's bound to be a lot more activity before the leaves start falling from the trees.