A Baby Database's Chance to Grow Up?

At first glance, Marten Mickos would hardly seem a revolutionary. The gentle Scandinavian has a square, friendly face and soft diction. But as the CEO of MySQL, a Swedish open-source database software upstart, Mickos carries a big stick. He claims 4 million MySQL installations worldwide and 30,000 downloads of the software per day. That makes MySQL by far the planet's most widely distributed open-source database. Mickos also says his 70-person company has 4,000 paying customers around the world who ante up (at rock-bottom rates) to buy MySQL support and licenses.

To date, though, MySQL has been viewed mainly as a cheap database for running Web sites and as relatively unsophisticated compared to the whiz-bang wares of the database Big Three, Oracle (ORCL), IBM (IBM) and Microsoft (MSFT). Further, MySQL was never seen as an apple-cart tipper on the order of Linux. But Mickos and his minions served notice to the database sector on May 27 when MySQL announced an alliance with German software giant SAP (SAP). Then on June 3, MySQL announced a $19.5 million venture-capital financing round including marquee Silicon Valley VC firm Benchmark Capital.

Combined, the two developments could give MySQL much needed momentum. SAP, which racked up $7.4 billion in 2002 revenues and net income of $597 million, is the top dog in complex business software. It claims that as of April, 2003, it controlled about 54% of that market, up from 50% at the end of 2002 and well ahead of rivals Oracle, Siebel Systems (SEBL), PeopleSoft (PSFT), and J.D. Edwards (JDEC) (the latter two have announced a merger deal in which PeopleSoft will pay $1.7 billion in stock to acquire Edwards). So the SAP deal gives Mickos the blessing of one of the most dominant companies in enterprise software, much the way IBM gave Linux a seal of approval that more than anything else helped the Penguin people crack the corporate operating system market.

PAYING TWICE. And the new financing should give MySQL the cash to upgrade its database with new features to take on Oracle, Microsoft, and IBM -- at least in less sophisticated installations. If the story of Linux's rise from humble hobbyist project to powerful corporate system is prologue, then this spring could mark the start of MySQL's inexorable ascent.

The shadow play here is SAP's long-held desire to commoditize databases. Most of SAP's customers now install Oracle, IBM, or Microsoft databases as the underpinnings necessary to run SAP's business software. That means SAP customers have to pay extra for a database license, often thousands of dollars per server. Compare that to annual support costs ranging from $1,500 to $48,000 for MySQL and free downloads of the software if customers want it. (They can also buy a proprietary version of MySQL that's revisable for less than $300 per server and gain the ability to make software enhancements without being required to share them in the open-source tradition.)

The current setup of separate database and enterprise software is an additional barrier to SAP's sales. It also means it has less control over its customers. That's precisely why SAP has long offered its own SAP DB product, which is more sophisticated than MySQL but still lags behind Oracle, IBM, and Microsoft in terms of features. Three years ago, in hopes of catching the open-source wave, SAP even tried revealing its database's source code. But that didn't spark many new sales nor did it attract a community of interested open-source developers.

NATURAL MOVE. The desire to make databases a commodity item has recently taken on more importance for SAP. Both Oracle and Microsoft are pushing hard to horn in on SAP's core market by selling their own versions of complicated business application software. Plus, new database license revenues dropped worldwide in 2002 to $6.6 billion from $7.1 billion in 2001, making the database market that much more tenacious.

In this light, SAP's deal with MySQL is a natural. Under its terms, the German company will pass development of SAP DB to MySQL. The Swedish company then picks up commercial rights to SAP DB. Mickos plans to merge SAP DB's code with that of MySQL. And he hopes to incorporate heavy-duty computing features into MySQL's next release.

If he's successful, that could save MySQL years of development time and immediately put it on competitive footing with the big guys for lower- and middle-tier types of commercial database installations. "We're typically used in Web sites and departmental applications, but we're not the database for a business application in the enterprise. And we want to change that," says Mickos.

"MOST LOGICAL WAY." And SAP says it will support customers who want to use MySQL products. That's key because a big global support partner is precisely what IBM brought to Linux. In exchange, SAP gains access to the development process of this popular open-source product and pushes its agenda of commoditizing databases. "We're not contributing to commoditization to spite Oracle. We do it because it's the most logical way to reduce the cost of ownership," says Shai Agassi, the SAP executive-board member who handles open-source issues.

The upshot? It could mean SAP finally has a broadly accepted commodity database to offer costumers. That would be bad news for big database companies. Oracle in particular has the most to lose because its primary business remains databases, and its share of new database license revenue fell from 40% in 2001 to 34% in 2002, according to Gartner. Forrester Research software analyst Ted Schadler says lots of other companies would rather not pay what he calls the "database tax." Says Schadler: "It won't take very many high-profile companies to support MySQL to start the snowball effect."

Pulling a Penguin won't be easy, though. Linux attracted corporate users tired of paying for premium hardware to run Unix operating systems. But all major database software runs on commodity Intel-based servers, so running MySQL doesn't save businesses much hardware costs. "There is today no huge vacuum in databases that an open-source database will fill. This is in distinct contrast to Linux, where no Unix vendor could provide Unix at Intel price points," says Forrester's Schadler.

DIFFERENT EXPECTATIONS? Further, several efforts to create viable open-source alternatives to proprietary databases have failed. "They have long been searching for alternatives for Oracle," says Ken Jacobs, Oracle's senior vice-president for product strategy.

Jacobs claims to be not terribly worried because he believes Oracle sells to a completely different kind of customer. Building databases like Oracle's, which run on clusters of multiple processors and scale up to handle enormous numbers of requests per second, is also something that could take MySQL years to accomplish, according to Jacobs.

Even Mickos is circumspect in describing the significance of the recent developments: "We're not trying to compete with Oracle and IBM. There's a need in the market for a commodity database that's easy to use. We don't see IBM and Oracle even trying to be in that space." That may be so, but SAP, which analyst Schadler calls a "very patient company," likely has a larger agenda in mind. By Alex Salkever

The Good Business Issue
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