Operation Open-Source

Will Oracle, IBM and other large proprietary vendors use their power for good or evil in the open-source world? Most observers believe the companies will veer more toward the light than the dark, although Oracle's move to buy up as many as five open-source companies recently is making some in the open-source community a little jumpy.

Over the past few months, Oracle has snapped up two small open-source database companies, InnoDB and Sleepycat Software. But the company hardly appears content with those two purchases, having engaged MySQL, JBoss and Zend in acquisition talks as well. Executives at MySQL said in late February that they turned down Oracle's offer.

"This could be just about Oracle buying an installed base they can sell more software and services to," says Dan Kusnetzky, vice president of Open-Xchange. "But I don't know if the open-source community feels comfortable being purchased, or if they see Oracle as an acceptable custodian of the code base they have contributed to."

Others feel that Oracle sees the new age of software development and delivery hurtling toward it and is simply positioning itself as best as it can to compete in that space.

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"Oracle is the Cisco of this decade. Cisco bought dozens of companies in the 1990s, but Oracle may be doing a better job of it," says Dana Gardner, principal analyst at InterArbor Solutions in Gilford, N.H. "It knows the days of high-margin proprietary software are over, and they played that card well. Now they are looking to play well in the new game."

But Oracle's aggressiveness has the open-source community and analysts questioning its motives. Is the company ruthlessly taking its competitors off the battlefield by buying them up, or is it trying to expand market opportunities for the greater good of open source?

"There was concern that IBM was buying Gluecode to take it off the market in order to protect its WebSphere franchise, but it turns out they didn't do that," Gardner says. "So if the IBM-Gluecode deal is any indication, what we're seeing [on the part of Oracle and other proprietary vendors] is not a hostile move but a positive one to help grow the market."

Many analysts believe there's another reason, too, for Oracle's keen interest in open-source companies: beefing up its database strategies to stop Microsoft's SQL Server momentum.

"These moves [by Oracle] have as much to do with taking away oxygen from Microsoft at the low end of the database business as with worrying about losing revenue in their high-end business," Gardner says. "People are not going to swap out Oracle 11i and slap in Sleepycat."

In fact, a well-intentioned and thoughtful strategy of acquiring open-source companies on the part of Microsoft competitors could put a lot of pressure on the Redmond, Wash.-based giant, above and beyond its database business. By acquiring a range of open-source players, Oracle and IBM can save money on R&D and deliver strategically important products much faster than Microsoft.

Because it's unlikely that Microsoft will adopt any true open-source business model, such competitive pressures could force it to change fundamentally the way it develops and delivers its flagship operating systems and applications. Most industry observers believe that Microsoft will have to break out of its three-to-four-year development cycle and gravitate toward one that allows it to deliver a steady stream of product enhancements.

Meanwhile, Red Hat and Novell don't feel particularly threatened by Oracle's--or anybody else's--acquisition strategy. Rather, they perceive it as a ringing endorsement of their technology.

"This validates the relevance and power that open-source [products] now have in the technology world," says Ed Boyajian, vice president of worldwide OEM and channel sales at Red Hat. "We couldn't get a better endorsement."

NEXT: Another acquisition motivator--Wall Street.

Others believe that companies such as Oracle and IBM are gobbling up smaller, open-source companies to boost their revenue and keep up their stock prices. With an already solid franchise in databases and other high-tech tools, those vendors want to focus more now on applications by building or acquiring them from others.

"Oracle knows Wall Street expects them to grow revenue. The way to do that is to have a bigger audience, and the way to do that is to spread out by acquiring or building more applications," Kusnetzky says. "It has been a masterful approach."

If Oracle does use its power for good, its potential buying spree of open-source companies could prove beneficial to customers. Given its financial resources, market position in databases and support organization, Oracle could serve as a convenient one-stop shop for users and VARs piecing together complex solutions made up of open-source and proprietary technologies. And that would give companies one more reason to commit to open-source projects, thereby accelerating sales.

"If I could buy most of my major business apps from a single channel or vendor, I might be more inclined to go with an all-Oracle or all-IBM solution," says John Henderson, purchasing agent at an insurance company in Omaha, Neb. "That would certainly be attractive."

But there's perhaps a more fundamental question about Oracle's and IBM's tactics in the open-source realm. What technological advantage can these companies hope to gain when they acquire an open-source company? Because open-source companies develop most technology under the General Public License (GPL), which ensures that all software be shared freely, proprietary players must share with competitors what they develop.

"When IBM acquired Gluecode, it got a little bit of integration code and [some personnel], the people who worked there," says Michael Goulde, senior analyst for the Application Development and Infrastructure research team at Forrester Research in Cambridge, Mass.

But what clearly appeals to Oracle and other large proprietary companies about open-source players is their services-based revenue models, which are slowly supplanting traditional software-licensing paradigms.

"This is just further verification of a trend we have seen for two or three years where products are moving under subscription, or pay-as-you-go, models," says Al Gillen, research director of system software at IDC in Framingham, Mass.

Some industry watchers believe that Oracle, IBM and others soon will turn their attention to other emerging technologies as a way to pad their portfolios. Three areas of interest are systems management, security and business intelligence.

"There are a few [open-source] markets that will be hot soon, especially business intelligence," says David Skok, general partner at venture-capital firm Matrix Partners, Boston.