The Worth of Open Source? Open Question

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MySQL has already started courting investors. It held a 2007 pre-IPO road show in New York and Boston to talk about the company's brand recognition, sales, and the appetite in the public market for an open-source software company, Mickos says. "We've gotten good feedback from some of the biggest public investors," he says.

There's reason for the warm reception. Growth at MySQL has taken off the last few years as some of the Web's hottest companies have adopted its technology. Google's ad-serving software runs on MySQL's database, as does its YouTube video site. "MySQL is a terrific database," says Chris DiBona, Google's open-source programs manager. Yahoo's Flickr photo-sharing site runs on MySQL, and the company uses the software for its finance and games sites.

Other Web companies including Wikipedia, Facebook, Craigslist, and Linden Lab's Second Life are adherents as well. "The technology was crucial to us being able to deliver so much so quickly," says Scott Dietzen, president and chief technology officer at Zimbra, whose open-source e-mail software ships with MySQL inside.

Gaining Traction

Compared with database software from Oracle, Microsoft, and IBM (IBM), MySQL's product dispenses with many features aimed at running financial software and other business applications in favor of a stripped-down approach that serves up Web pages at blazing speeds. "We grew up with the Web companies," says Mickos. "People say, 'MySQL, will you ever grow up to be an IBM?' And we say, 'No, that's the old world.'"

The company has carved a niche among Web companies that use its technology in conjunction with Linux and other open-source software to run their sites on the cheap. "That's the aspiration of these companies—they want to grow big, but they don't want to spend a lot of money to do it," says Zack Urlocker, MySQL's executive vice-president of products. MySQL aims to sell its software for 90% less than its competitors, he says.

A public MySQL could be a good buy as it fills the underserved market for an affordable database aimed at companies exploiting new, more interactive aspects of the Web. And it's gaining traction at other companies, too. MySQL helps power Nokia's (NOK) cellular network and Gap's (GPS) checkout systems. NBC and The New York Times Co. (NYT) are also customers. Cisco Systems (CSCO), Symantec (SYMC), and other tech vendors distribute MySQL with their products.

Valuation: Unknown

But can MySQL keep up the growth without adding hefty sales and marketing costs—and getting squeezed by competitors? The company employs just 30 field sales staff out of a head count of 360 and strives to close deals more quickly than rivals. Most employees work from home. "Managing the cost of sales and marketing in an open-source company is the key to profitability," says Mickos, sitting in a small, spartan office adjacent to a sea of cubes in the company's Silicon Valley digs. "We're not just innovating in software, we're innovating in sales."

Rivals aren't taking the threat lying down. In 2005, Oracle bought a Finnish software company called Innobase, whose technology is used by MySQL. MySQL is building its own version of the software in a project code-named "Falcon," but for now must pay licensing fees to its bigger rival. And IBM and Sun Microsystems (SUNW) are backing an open-source database called Derby, which competes with MySQL.

How investors will value MySQL is another open question. Some reckon Red Hat, whose $4.55 billion market value is about 11 times its fiscal 2007 revenue, is a good starting point. Like MySQL, Red Hat also has millions of users and a low-cost sales model, says MySQL Chairman Harvey. Jereme Le Blanc, vice-president at investment banker Boston Corporate Finance, says MySQL's 50%-plus growth for its size could catapult its market value well above $500 million—if the company can convince users to keep paying for subscriptions. "That's pretty robust growth for a company that's already at $50 million," he says. MySQL's ability to keep selling service contracts for software that's also available free will affect its valuation, though. "A lot of people think the open-source market for database software is very lucrative," Le Blanc says. "It's too early at this point to gauge whether the model works."

Ricadela is a writer for BusinessWeek.com in Silicon Valley.