IT Investment Research

Oracle/EU Battle over Sun Ends with a Prayer

Aaron Ricadela of BusinessWeek is out December 14 with what looks like some good inside-baseball reporting on the final innings of the Oracle (ORCL) win against the European Union (EU) Competition Commission over the Sun (JAVA) acquisition. A non-binding PR release from Oracle pledging not to be Oracle for a few years when it comes to MySQL seems to be all it took. Interestingly Ricadela says the thing that pushed the apparent EU approval over the top was Oracle's quiet commitment…

“to let other technology vendors continue licensing MySQL for use in their products for another five years”

on the same terms that Sun had offered them.

So who are these poor little technology companies?  Are they a bunch of struggling open source based MySQL, JBoss and Zimbra wannabees? Ricadela says they include  Symantec (SYMC), F5 Networks (FFIV), Google (GOOG), Yahoo! (YHOO), Facebook [partially owned by Microsoft (MSFT)], and Twitter. SAP has an arrangement with MySQL as well. He says

“EU regulators were concerned that Oracle could squelch competition in the database market by owning (both) the top business database software and the most widely used database among Internet companies.”

Oracle argued unsuccessfully that these are two distinct markets.  The EU decided correctly that that claim was bogus.  No 2008 market analysis I've seen divided Sun's revenue for MySQL from Oracle's revenue for Version 11. 

So what Oracle did was give some competitors a few years to find other options if they do not like what are likely to be higher support fees and other more expensive terms and conditions in the long term.  Clearly the EU was simply looking for a way to save face given that no one in the world objected to the deal except a small Finnish company called Maria offering a MySQL knock-off (and hoping to get all that Google, Symantec, Facebook, etc. business). 

The version of MySQL used by these companies is not open source according to the BusinessWeek article. That explains why the two-month-long attempt by Maria to stoke the fires of open source blogoblatherers and the last minute direct call to the open source community to write to the EU fell on deaf ears in Brussels. Recent 451 Group research shows how the open source community that uses and works with MySQL soldiers on depite all the EU intrigue.

The press focus on Oracle's more visible “pledge to spend at least $72 million in the next three years to develop MySQL and on the company's commitment to continue releasing open-source versions of the software with the latest technical enhancements” illustrates how really un-open-source the MySQL product is culturally. 

As with most commercially popular open source software, we are not talking about nerds in the attic working through the night cranking out code. To put it another way, most popular open source software is built in the cathedral, not out in the bazaar. And more and more of it is built right in the sanctuary.

-- Dennis Byron

Microsoft: Do the Right Thing on Oracle/Sun, IBM Has

The Financial Times reports on the morning of December 9 that IBM Software Group uberlord Steve Mills has come down on the side of Oracle (ORCL) in its fight to get European Union (EU) approval of the Sun (JAVA) acquisition.

Mills confirms what Oracle has been saying: he never sees MySQL in IBM database sales situations. My guess: those 60,000 daily downloads of MySQL are about as significant as the billions of AOL diskettes that were mailed out in the 1990s just to fill up U.S. landfills.

Good for Steve Mills!  Now it's time for the other Steve to step up and say to the EU:

"Don't do to Oracle what you did to Microsoft (MSFT)!"

In fact, Steve Ballmer could add,

"Larry Ellison is not the pussycat that I was.  He'll take out 20,000 jobs, a few factories and warehouses, and anything else he can find related to Oracle and Sun in the EU if you don't approve the deal."

In fact, Ellison may just gut Snoracle in the EU anyways just for the aggravation the bozos have caused him.  It's probably cut into the Hawaii regatta season.

The Financial Times, to be fair and balanced journalistically, went out and interviewed the only guy in the world who seems to be against Oracle's acquisition, the guy with the agenda behind the whole mess the EU Competition Commission has found itself snookered into. Self-proclaimed open source advocate Florian Mueller says in an email to journalists:

"The problem with hoping for future contributions from large companies is just that MySQL has historically not had Linux-like support from companies like IBM, which has its own database business anyway."

But Mueller also has his own database business, which is the hidden agenda here.  It is based on a product called MariaDB, a fork of MySQL. This waste of Oracle and Sun (and Microsoft and SAP) shareholder value is all about tilting the market dynamics in favor of Mueller's company.

Come on, Ballmer.  Do the right thing for a change! Go to Brussels December 11 and tell Neelie what you really think of her.

-- Dennis Byron

451 Group Research: Oracle/Sun MySQL Is/Will Be Open Source

Recent 451 Group research helps make the argument that the European Union (EU) objection to the Oracle (ORCL) acquisition of Sun (JAVA) is a sham.

The EU is supposedly worried that the dreadful "proprietary" software supplier Oracle will squelch continued use and development of the sort-of-open-source licensed  MySQL and thereby restrain database software market competition.  Oracle says in rebuttal (among multiple rebuttal points to the incoherent EU position) that the EU Competition Commission simply does not understand open source culture dynamics. 

Oracle is right (in this case) and the 451 Group numbers, listed in a blog post by Matthew Aslett, indicate how it will work:

• Less current MySQL users will use MySQL because it is "owned" by Oracle
• These deserters are the "French wine/Italian shoes" open-source crowd of which I write occassionally; they represent the small slivver of the market that rates license terms and conditions more important than function 
• They will move to MariaDB, the MySQL fork project that the EU is trying to unfairly protect, and PostgreSQL, not to Oracle

That's how the open source culture is supposed to work.

There are some methodological issues with the 451 Group Research in that respndents appear to be 451 Group customers only, so I would question that the absolute numbers reflect the information technology market to any meaningful degree.  But directionally the numbers reflect exactly how market dynamics should theoretically move.  And its not the way the EU reportedly says in its Statement of Objections.

The entire 451 Group research report is available only to its subscribers.

-- Dennis Byron 

IDC Says Windows Servers Surpass Unix/Linux Boxes in Quarter 3

If you’re a Microsoft (MSFT) investor looking for good news wherever you can find it, it looks to me like Windows-based-server shipments from the factory--as measured by worldwide revenue--surpassed Unix/Linux-box shipments for the first time ever in the third quarter of 2009. 

 
I’ve only been looking at these quarterly IDC's findings since 2006 but I doubt if Windows surpassed Unix/Linux in years before I started watching this trendline for no other reason than Linux is continuing to gain at Unix’s expense. 

Linux boxes accounted for 14.4% of the total, also a high for that category. Unix-based boxes only accounted for 27% of the revenue, only the second time that number has dipped below 30% in the years I have been watching.

I continue to look at it as “Windows is progressively gaining against ‘other’." As I said the last time I posted on the subject, my opinion is that despite the press hype and conventional wisdom, Linux and Windows probably do not meet much in the marketplace. Especially because the marketplace is driven by the OEM.

I say "if you’re looking for good news" above because overall of course there was none.  The illustration shows percentages but these are percentages of an increasingly smaller pie. On a trailing 12-month basis, server shipments are down 21% with Unix, Linux and Windows-based server shipments down about 20% and ‘other’ (mostly mainframes) down 25%.  IDC seems to think the bottom has been hit though.

-- Dennis Byron

The EU's "Profound Misunderstanding:" MySQL Dominates Database Market

According to a Bloomberg story released November 21 concering the European Union (EU) statement of objections against the Sun (JAVA)/Oracle (ORCL) merger, it's hard to see why the homeboy EU open source project MariaDB, a fork of MySQL, needs the EU's statist protection. And it's clear why Oracle says the EU Competition Commission has a

"profound misundertanding of both the database marketing and open source dynamics."

The open source thing is a side show designed to get the open source blogblatherers up in arms but it is clear, if the Bloomberg story is accurate, that the EU really misunderstands enterprise software market dynamics. Apparently—according to Bloomberg’s reading of what it says is a 155-page document—the Eurocrats have decided that MySQL is the fourth leading database in the world. Also according to Bloomberg, the EU finding is based on the number of daily downloads of MySQL.

So now we know how the EU analyzes competition in the enterprise software market.  It’s known by software market analysts as the Compuserve or AOL method.  That is, it proposes that one size a software market not by the number of productive instances of a piece of software or by the revenue generated by that software but by the number of annoying free floppy diskettes sent out to consumers by snail mail every month. That is the way AOL and Compuserve executed try-it-you’ll-like-it marketing before Internet downloads became the norm. Billions of the diskettes of course immediately filled up landfills pre recycling days. Most never made it into a floppy drive never mind doing anything useful.

By the EU Competition Commission’s logic, MySQL must be the leading database in the world, not number four.  At the reported 60,000 downloads a day, there must be more than 20,000,000 copies in productive use just from downloads in 2009.  That’s something like five for every database administrator in the world.  Figure that MySQL has been around for 10 years or so and that means 200 million instances are running. Figure that no reasonable program development person would download a copy every time he or she began a new application development project (that is, they would use the copy they previously downloaded) and you have to assume, using EU logic, that MySQL is in use in billions of productive situations.

And yet according to IDC, according to the Bloomberg article reporting on the leaked EU statement of objections document, Sun only realized $40 million in worldwide software revenue last year from MySQL. Typically IDC software market statistics do not include professional services revenues—such as for training and implementation—but just license and subscription maintenance revenue. I do not know the methodology or source that IDC used in the statistic quoted by Bloomberg. Another widely quoted source in last few weeks said Sun netted $300 million from the first full year of marketing MySQL. MySQL executives were widely quoted as saying the company did between $50 and $100 million in revenue in the last full year before it was acquired by Sun.

So why does MariaDB need the protection from the EU that its public policy expert is lobbying for?  All it would seem Maria needs to do is peel off 10% of the vast MySQL installed base and it would have a multi-hundred-million dollar software and support business. Or maybe what is really happening is that the Maria guys know--because they were the MySQL guys until recently--that the project actually has very little business viability.  And they have to stop the train for a decade or so until Maria might theoretically catch up to Oracle database functionality and popularity.

That's all I can figure from this EU-bureacrat-full-employment extravaganza. 

Oracle, do the right thing by shareholders (yours and Sun's). Get out of the EU.

-- Dennis Byron

Are EU Objections to Oracle/Sun Really About Maria?

In a November 16 blogpost, despite the cursory view of some analysts who say withdrawing from the European Union (EU) enterprise-software market is not feasible for Oracle (ORCL), I wrote that Oracle's withdrawal was not only feasible but something Oracle’s board is really obligated to consider. Microsoft (MSFT) in fact mentions the option specifically in its SEC filings in discussing its always contentious dealings with the Eurocrats. The catalyst for the blog posts is the EU Competition Commission’s statement of objections against the Oracle acquisition of Sun (JAVA), objections reportedly based on Sun ownership of the MySQL relational database product. (I say ‘reportedly’ because the EU, with all its fondness for openness, does not openly release its statements of objections.)

It’s interesting the way the debate spins out from that point.  Over on Information Week, Bob Evans has already written Larry Ellison’s withdrawal letter to its EU customers, calling European information technology (IT) professionals to the barricades against Neelie the Sixteenth (or Neelie Antoinette, whichever you prefer). At InfoWorld, Bill Snyder talks to a lot of open source gurus and finds that no one except the MariaDB MySQL fork guys stands to gain.

When Bill called me about my November 16 post, he asked,

“But why would Oracle want to give up a four-to-six-billion-dollar annual revenue stream for the trivial revenue stream MySQL generates?”

It’s a good question but my answer to Bill is

“It doesn’t matter to me why Oracle wants MySQL” 

The issue is that the EU shouldn’t be able to tilt the playing field in favor of the EU homeboys trying to start the company that Snyder references. The EU has similarly tried to tilt the browser market playing field in favor of some Norwegian whiners with their free-market-loser product called Opera.

This distortion of market dynamics by politicians is bad for EU IT consumers and it is bad for enterprise software suppliers in general. And its probably even bad for the EU. Oracle’s opening position at the meeting on November 25, if it hasn’t told the EU this already, should be: 

"Approve the Sun deal or the new Snoracle does not do business in the EU." 

Close down that factory in Scotland and the warehouse in the Netherlands. Send your citizens over the border into the Ukraine to get new software or to the UAE for training. (I assume they are already getting their software maintenance calls answered from India.) Take out maybe 20,000 EU jobs. At such a high percentage of the total workforce as compared to percentage of the revenue stream the EU will contribute to Snoracle, it would be well worth it even with onerous severance payments. 

And Oracle shareholders will also save the multi-billion-dollar payments that the EU weaseled out of Steve Ballmer.

And then as Bob Evans points out, listen to the EU citizens scream at its Competition Commission.

-- Dennis Byron

Pulling Out of Europe Not Only Feasible for Oracle; Maybe It's a Board Imperative!

Over on Internet News, Andy Patrizio mentioned my November 13 post about Oracle (ORCL) dumping the European Union (EU) rather than MySQL and then tried to come up with some reasons to shoot down the idea.  I have no problem with that. The idea is fair game for argument, rebuttal or even disdain.

But when Patrizio says “It just isn’t feasible,” that’s not the case. It might not be good idea, it might be hard to execute, it might cause problems for customers (but see below for how easily they are handled), it might be more trouble to manage than it is worth (such that the proposed savings do not materialize), etc. But it is definitely feasible. 

In fact, in some cases it is an imperative. Public companies must either implicitly or explicitly take the following position quoted on page 14 of the 2009 Microsoft (MSFT) 10-K:

“We may have to choose between withdrawing products from certain geographies and…”

Boards of directors are obliged by fiduciary responsibility to constantly ask themselves whether they should do it. Is Oracle's board currently so obligated?

As for feasibility, don’t fall into Patrizio’s trap of equating Europe with the European Union. Not all European countries belong to the EU. Perhaps the EU might tell its citizens that they can’t go to (or call) Switzerland or Croatia (or India or Belarus) to get some software fixed.  But I would guess that would be as hard a task as the state of Massachusetts has trying to keep its residents from buying goods over the border in sales-tax-free New Hampshire

As an aside, I did not mean to imply that “Europe's biggest nations (England, France and Germany)” share of Oracle’s revenue is “shrinking because Europe's economy is in worse shape than America.”  I don’t think anything I said even hinted at that. The economies of those countries are shrinking because the countries’ populations are shrinking or growing very slowly. It is a long-term issue and not simply an outgrowth of the Financial Panic of 2008.  

-- Dennis Byron

The Numbers Explain Why Oracle Should Abandon EU

I said in my post on November 12 Larry Ellison should ask himself whether it is even worthwhile for the new Oracle (ORCL)/Sun (JAVA) combination to do business in the information technology (IT) backwater that is the European Union (EU). Why go through the hassle of dealing with EU regulators when it appears the return on investment is so low? My suggestion is to just consummate the merger without EU approval and don’t do business in the EU.

A bunch of Euroblatherers on seekingalpha.com commented that my idea was anti-Europe bashing. One even criticized the quality of my photograph, which I love because it is a snapshot taken by friend in front of an old restaurant on Helsinki harbor. I love to go to places like that in Europe and look at the old cathedrals and decrepit palaces.  It’s just that the over-regulated EU is an increasingly bad place to sell enterprise software and IT.  Look at the numbers.
 
According to its 10K, Oracle received less than 15% of its revenue from the EU big three—the UK, France and Germany—during fiscal 2009.  And that’s down from 16% in fiscal 2008. Given those countries’ contracting economies that number is bound to keep dropping. Because the revenue is based on GAAP accounting, it would take some work to figure the real compare (e.g., would need to factor in the percent of business BEA and other acquisitions did in the EU) but maybe—best case and counting Slovenia and Wexford and all those other great bastions of industry—Oracle gets 20% or 25% of its revenues from the IT consumers regulated by the non-tech-savvy bureaucrats in Brussels.

According to its 10-K, Sun (JAVA) on the other hand gets almost as much revenue from Europe (that's not the same as EU but that’s the best number we have) as it does from the U.S. And a third of Sun’s U.S. revenue comes from Avnet. In fact, while Sun revenue in the U.S. dropped 25% in the last few years, it only dropped 15% in Europe. The trendline of Sun’s EU numbers vs. the U.S. numbers should forever be considered a good leading indicator of failure in the IT market for all companies. Clearly when everyone in the U.S. is bailing out of a company’s IT products and services as with Sun, but the IT consumers of the EU haven’t got the word, sell your shares. 

As with the Oracle numbers, there might be some falling/rising/falling dollar issue in those statistics. But I bet it wouldn’t take a lot of analysis to figure out that that revenue—whatever the apples-apples revenue numbers are—is no where near as profitable as doing business in real markets where politicians don’t try to regulate the shape of fruit. For example it looks like half the employment of the combined company would be European even though only 25% of the revenue comes from there.  If Snoracle gets out of the EU, that salary expense drop to the bottom line.

-- Dennis Byron

Memo to Oracle: With Sun Comes Widgets

With Oracle (ORCL) going to the mattresses with the European Union (EU) over its proposed Sun (JAVA) acquisition, many analysts are suggesting Oracle walk away from Sun.  I am suggesting Oracle walk away from the EU. Larry Ellison should ask himself whether it is even worthwhile for Snoracle to do business in such a backwater.

The EU is the place that 50 years after Plan Calcul is still trying to launch a nativist information technology (IT) company to compete with IBM. Larry, ask Neelie about Tulip.  Remember Cii and that crazy Siemens, ICL, Nixdorf, Bull, Olivetti thing in the mid 70s. No prolonged effort to get approval of the Sun acquisition is going to change that basic dynamic. No three-year effort to get to the Court of First Instance of Last Resort in Strasbourg is going to be worth spending all that time walking around in Stalinist architecture during days of little sunshine (the EU does not work in the summer and it rains all the time there in the spring).

So why go through the hassle of dealing with EU regulators when it appears the return on investment is so low? That’s especially true if Oracle is serious about keeping and growing Sun’s systems/storage business.  Software—the market that Oracle knows well—is portable. But message to Redwood Shores:

"With Sun, comes widgets."

So Larry this should be the opening position at the meeting on November 25, if you haven’t told the EU already: 

"Approve the Sun deal or the new Snoracle does not do business in the EU."

(Update on my post of November 10 about not being able to analyze the EU’s statement of objections, I received the following from the EU’s crack PR folks:  “We regret to inform you that Statements of Objections are not documents of public domain. They are sent to the parties concerned in the transaction.”  So I’ll have to wait until later this week when SAP leaks it to the Wall St. Journal.)

-- Dennis Byron

European Union Database Market Takes on Oracle: They Call the Wind 'Maria'

This is the battle I have been waiting for (at least until November 15 when New England takes on Indy).

I must admit part of my lust is just for the sport of it… to see Ellison do what Ballmer should have done. But it’s deeper than that. The statement of objections reportedly filed by the EU Competition Commissioner against the Oracle (ORCL)/Sun (JAVA) merger pits the statism of the 50-year European Union (EU) attempt to nationalize industries and markets, including a score of failed attempts to spawn an EU information technology (IT) industry and various EU IT markets, against a future world order totally tilted to the western part of North America and the rest of the Pacific Rim in all things economic and political, not just IT.

I’d really like to dig deeper into it but I cannot find the actual statement of objections being raised by the EU.  This makes it hard to comment but the paragraphs below summarize what Oracle says in rebuttal.  I am clearly not going to be disappointed because Oracle’s bombast is as usual seriously misleading and yet cuts to the quick. For example:

"Oracle's acquisition of Sun is essential for competition in the high end server market, for revitalizing Sparc and Solaris… "

Well that’s clearly not true because Sun has been a nonentity in the server market for some time so there is no essential competition.  I guess you could say it might be important to “revitalizing Sparc and Solaris……and for strengthening the Java development platform” but the IT market has already said it doesn’t care.

“The transaction does not threaten to reduce competition in the slightest, including in the database market."

This is apparently the heart of the matter and is true because no merger or acquisition reduces competition; bad products decrease competition. As usual, a bunch of European guys with an apparently bad database management product called Maria (forked out of MySQL but see paragraphy below)--unable to compete on a level playing field, the worldwide IT market--are trying to tilt the EU database software playing field in their favor.

“It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source."

This is a side issue, or at least it should be, but the statement is true.  Apparently the EU marches on because of the EU losers who were not able to take over the world with their low-functionality EU database software.  It’s the same meme as the loser Norwegians that screwed up Windows 7 because no one used their Opera browser.

“Oracle and MySQL are very different database products.

Well that’s not true.  Why would these EU losers who are marketing Maria start this battle if it was a different product than Oracle's database software.  The whiners know that it’s just that Maria is 30 years behind Oracle’s relational database research and development.  In theory, Maria could catch up if the EU tilts the playing field enough.

“The U.S. Department of Justice carefully reviewed the proposed acquisition during the normal Hart-Scott-Rodino review and considered it again when the European Commission initiated a second phase review.

Well Larry, that's not a winning argument.  Don't you know that nothing makes the EU feel more comfortable than telling them the American government thinks it’s OK.  Look how well the EU is coming through in Afghanistan. I hope Ellison has already made the threat Ballmer should have: 

"Approve this or Oracle is out of Europe.  Who needs your dying statist economy anyways?"

-- Dennis Byron