Why is Oracle fighting so hard for Sun's MySQL?

By Jim Finkle - Analysis

BOSTON (Reuters) - Oracle Corp (ORCL.O) has allowed regulatory approval of its $7 billion acquisition of Sun Microsystems Inc (JAVA.O) to drag on for months due to controversy over a database that most users get for free.

Sun's MySQL database, while minuscule in revenue terms, is important to Oracle because it can help the company expand into new markets and improve its competitive edge against arch-rival Microsoft Corp (MSFT.O), analysts say.

MySQL's customer base comprises small- and mid-sized companies that use its technology to run websites and store business data. Oracle's database has traditionally been weak in these markets, focused instead on large corporations.

"Oracle's install base represents the Old World -- the existing enterprise application space. There is a whole New World that Oracle hasn't been able to capture," said Marten Mickos, a former chief executive of MySQL.

MySQL is one of several assets that Oracle will gain with its acquisition of Sun, but it is the only one that antitrust regulators have singled out for scrutiny.

While U.S. authorities have approved the deal, European Union antitrust regulators issued a statement of objections on Monday, saying it would hurt competition in the $19 billion-a-year database market if No. 1 player Oracle gained control of MySQL.

Such concerns have held up the Sun deal for months and resulted in what Oracle CEO Larry Ellison has said are hundreds of millions of dollars in related losses.

Oracle has refused to compromise on MySQL, an asset that analysts say will help the world's No. 2 business software maker expand into new markets. Google (GOOG.O), Amazon (AMZN.O), Facebook and several travel agents are among the Web giants that use MySQL to run their websites, a market Oracle has had a tough time cracking.

A ONE-STOP SHOP

MySQL, an open-source software product that is available via Internet download, is the only such database from a major company that is available at no cost. Sun makes money by charging customers for versions with extra bells and whistles. It also offers services such as updates and bug fixes.

Since most customers do not pay for the product, market research firm Gartner Inc ranks MySQL as the 15th-largest database maker by sales. MySQL generated revenue of $9 million last year and had a market share that was below 1 percent.

Oracle, by comparison, held about 49 percent of the database market by sales, bringing in revenue of $9.2 billion. IBM (IBM.N) came in second with 22 percent of the market, and Microsoft ranked third at 17 percent.

Acquiring MySQL will enable Oracle to offer a one-stop shop for data customers. MySQL would compete with Microsoft Corp's SQL Server on the low end, while Oracle's existing flagship database would go up against products from Microsoft and IBM in the mid-to-high range of the market.

"If Oracle doesn't control MySQL, it's a potential threat to them. They need MySQL to secure the perimeter of the low-end of the market," said ITIC analyst Laura DiDio.

Analysts are betting that Oracle will likely heavily promote MySQL against Microsoft's SQL Server, even if small businesses don't pay for the product, in a bid to discourage them from buying Microsoft's products.