MySQL's exit strategy

We interrupt this Mac channel for an unrelated announcement.

This morning, Sun announced that it was buying open source software company MySQL for $1 billion: $800 million in cash and “assume $200 million in options”. Sun spent more than a third of its cash on the deal.

Even though MySQL is the open source company that owns the most visible and widely distributed commercial open source product, it’s still an eye-popping figure. (Red Hat Linux is another animal since it doesn’t really own most of its code). Not surprisingly, other OSS companies planning their own exit strategies were ecstatic. I imagine the VCs were too, as was the indefatigable CEO Marten Mickos.

MySQL is privately held and thus its revenues are not known. I would be shocked if it had net income beyond $50 million, and thus the acquisition could not be justified on a cash flow basis. Instead, it must be based on the promised “synergy”. Sun is gaining entry into the enterprise database market with a highly disruptive technology, but the pricing power for commodity OSS packages still seems to be in question.

Meanwhile, also on Wednesday, the 800 lb gorilla of databases, Oracle, announced a $8.5 billion buyout of BEA. The two parties agreed to split the difference on their valuation from October when BEA rejected a lower offer.

Consolidation and commoditization have become the norm for the software industry. I suppose it’s better to be pushing the trend rather than fleeing from it.

Still, if the adoption and growth of MySQL doesn’t allow it to IPO, what open source company can? Or, for that matter, what software company can? It’s clear that the IPOs of Red Hat and VA Linux belong to a very different era.