Yesterday, Sun Microsystems announced its intention to acquire MySQL, the second largest independent open source software provider after Red Hat, for approximately $1bn in total consideration ($800m in cash and $200m in share options).

MySQL's eponymous database generated about $70m in revenue last year - with the company close to breaking even - according to Ovum's estimates. With headquarters in the US and Sweden, MySQL has 400 employees in 25 countries.

This is a bold, surprise move. It will take some time for the market to digest its implications. On the minus side, Sun's record when it comes to acquisition and overall software strategy is, at best, mixed. On the plus side, the company has recently pulled itself together and improved the way it interacts with the market. On the same day it announced the MySQL acquisition, it also pre-announced that its second-quarter results, to be released next week, would beat financial analysts' predictions with about $3.6bn in sales and $230m to $265m profits.

MySQL had been talking about becoming public for about a year now. But in the end it preferred to play it safe, turning to an acquisition to build up on the momentum it had already gathered.

This is good news for the company. No doubt that Oracle would have done its best to torpedo its IPO with the view to minimise its chances to raise money. Sun will provide it with the resources required, not just in terms of money but also (support and channel) infrastructure, to go forward in the direction it has been following in the past two years, namely towards increasingly mission critical deployments in large multinationals. It will be particularly helpful in the telecom industry, which MySQL had been specifically targeting in the past year.

In return, via MySQL, Sun is trying to regain its status as the company at the heart of the 'Internet economy'. It did it once with proprietary software. It intends to do it again with open source software this time, software (particularly the LAMP stack that combines MySQL with the Linux operating system, Apache web server and Perl/PHP/Python languages) that underpins the current generation of internet-centric companies and is making inroads into more traditional ones.

Sun, which has already open sourced most of its software portfolio, needs to act decisively to explain how the acquisition fits into a more clearly articulated software strategy and to competently execute on this strategy. Microsoft and Oracle are not quaking in their boots just yet, but they should get concerned.

The impact of the news is more mixed for the open source movement in general. On one hand, the price paid is a good reflection of the success, and future potential, of weaving open source into a business model. On the other hand, the smaller open source players likely to go public in the next two years would have benefited from a successful MySQL IPO.

The MySQL acquisition increases the likelihood of these companies preferring to be acquired instead. This is also not such good news for Red Hat in that it turns Sun into a stronger open source infrastructure opponent.

From an IT services perspective, this is clearly a significant opportunity for Sun to build on its services business. The acquisition fits perfectly with Sun's strategy of moving to the Open Source model of generating revenues from services rather than traditional licensing models.

But Sun will have to go some to ramp up MySQL services revenues from their current level. Sure, MySQL gives Sun the opportunity to cross-sell servers, storage, and other software, but the point about open source software is just that - it's open, freely available to run on any platform its adherents want to port it to. It is services that will bear the brunt of paying for MySQL.

And will MySQL and LAMP adherents feel so enthusiastic about supporting a vendor that hasn't exactly been enthusiastic about the 'L' in LAMP? It's no secret that Sun would prefer its customers to invest in a Solaris-based 'SAMP' rather than a Linux-based LAMP, even though a good number of Sun's x86 server customers use them to run Linux.

Sun's current services portfolio is heavily weighted towards Solaris (no surprises there), but if it wants to up its credibility as a LAMP solutions supplier, and indeed as a full operating system-agnostic systems supplier, it'll need to embrace Linux (and Windows) more fully in its services portfolio.

© Ovum 2006