It's Open Season

As Oracle and other major software companies buy open-source vendors, the commercial market takes on a new and uncertain look
Rather than cutting off rivals, Oracle's buying spree seems motivated more by the need to expand its customer base. By building ties between proprietary and open-source product lines, Oracle wants to convert open-source technology devotees to its database, application, and middleware products. That's where a JBoss deal could make sense. (BusinessWeek reported they're in talks, but neither company will comment. It also reported that Oracle's courting Zend, to which Zend CTO Andi Gutmans says Zend "works well with Oracle and lots of companies. We want to keep it that way.") Oracle hasn't fared well selling its middleware outside its database customer base, and buying JBoss would make Oracle Application Server or Identity Manager the logical upgrade for the growing base of JBoss users, rather than losing them to compet- ing products such as IBM's WebSphere and BEA Systems' WebLogic.

Earlier this month, speaking at a Credit Suisse conference, Oracle CEO Larry Ellison outlined the rationale for acquiring open-source software companies: "Rather than trying to fight this trend, the open-source trend, we think it's important we figure out ways to make it work to our advantage." Customers are waiting to see how well Oracle manages. By offering open-source products, Oracle will end up with a "bifurcated product structure," said Tim Golden, senior VP at Bank of America, at last week's open-source conference. Golden's leading a shift to Linux at the bank. Oracle's approach could open new possibilities for Bank of America, he said.

Oracle CEO Larry Ellison

Oracle CEO Larry Ellison

The Great Divide
IBM has supported Linux for years, and here's why: Low-cost Linux makes it easier to move a range of pricey hardware. Last year, IBM went further by buying open-source company Gluecode Software, supplier of an open-source middleware stack, which could be seen as competing with IBM's cash-cow WebSphere software. IBM wants to offer products based on open-source code to smaller customers, sell consulting and support, then up-sell to WebSphere as customers grow. It's a similar line of thinking that Oracle laid out when it started offering a free, limited-feature (but not open source) Express version of its database last year.

The open-source road isn't always paved with gold. CA began offering its aging Ingres relational database as open source two years ago, hoping to revive interest in the product. It got little traction beyond existing customers and last year spun Ingres off as an independent company.

Even Microsoft has felt compelled to align its software with some open-source projects. Last week, the company edged closer to open-source application provider SugarCRM; the pair are issuing a version of SugarCRM applications under Microsoft's Shared Source Initiative, the first time an open-source vendor has cooperated with Microsoft in that way. Microsoft also partners with JBoss to improve interoperation of JBoss Enterprise Middleware System, an open-source stack, and Windows Server/SQL Server. Under Microsoft's Shared Source Initiative, universities, researchers, and other noncompeting entities can get source code to certain products. Bill Hilf, Microsoft's director of platform technology strategy, says of partnerships with open-source vendors: "Communities matter. Platforms matter. Making money matters."

As Microsoft, Oracle, and SAP know, the money's still in proprietary software. They all have a deep vested interest in keeping applications, the software at the top of the enterprise IT stack, specialized and competitive so they can continue to charge hefty fees.

SAP is sounding like a lonely holdout against open-source permutations. (Though it, too, is a backer of Eclipse, gearing its NetWeaver tools to work with it.) In contrast to SAP's view that many open-source startups won't survive, Oregon State's Kveton predicts such companies will thrive, building components that add up to an increasingly viable open-source ERP stack, particularly for small and midsize companies. As open-source alternatives multiply, commercial software vendors will evolve their strategies by offering their products atop a base of open-source code, lowering licensing costs for users, and changing the nature of the IT infrastructure industry. "I see a natural progression and not a conflict," IBM's Handy says.

Could big vendors still muck it up? Without a doubt. But the nature of open source limits the damage. "If the new owners take a direction the outside contributors find unacceptable, some contributor will fork the project, and Oracle will find it is being ignored," says Eric Raymond, a co-founder and former president of the Open Source Initiative. Open-source projects do depend on key leaders, who generally move inside companies after acquisitions, and they can be hard to replace. Still, Oracle knows the drill and will work to avoid such a problem, Raymond predicts.

If Oracle, one of the bastions of proprietary packaged software, has found open-source religion, can anyone afford to ignore its influence?

--With Chris Murphy and Rick Whiting

This story was modified on March 2; EmployEase and Intacct don't provide open source applications.