Deals Cast Sun in Role of Open Source Standard Bearer

Sun Microsystems executives touted the disparate deals announced Tuesday as serving a common purpose: to enhance the open source technology development, and Sun's prominence as a movement leader.

In the first deal, Sun completed its US$1 billion acquisition of MySQL, the Swedish database software firm. Sun Chief Executive Jonathan Schwartz described MySQL as a "crown jewel" that will enable Sun to offer a complement of open source technologies that rival Microsoft's (Nasdaq: MSFT) proprietary offerings.

The second announcement is the first overseas expansion of Sun's OpenSPARC educational program. Inspired by the open source software movement, Sun in 2006 opened the underlying design of its advanced microprocessors to developers, and provided educational support to six U.S. universities. The new deal extends the program to five Chinese universities.

Processors for the People

The three-year collaboration "gives the People's Republic of China access to the tools and the freedom to develop the intellectual property framework it needs to cultivate native microprocessors and microprocessor engineers," Schwartz said in a press release.

Sun, based in Santa Clara, Calif., is banking on the open source strategy -- controversial to some analysts -- to revive fortunes for a company that has flagged in recent years.

Schwartz, who took over in April 2006, cut about 2,750 workers to reverse losses. Sun, which makes both computer hardware and software, has now posted five straight quarters in the black.

Questionable Model?

William Kreher, an analyst with Edward Jones in St. Louis, questioned the viability of a business model based on free software.

"They certainly have an uphill battle," he told Bloomberg News.

Unlike companies that fiercely guard and charge license fees for their intellectual property, Sun and other open source companies offer downloads of underlying source code for free to customers and third-party developers.

The marketing approach is intended to encourage adoption of tools that lead to subscription-based services and stimulate sales of Sun computer servers as well. MySQL offers its database software for free and makes money on maintenance.

Setting 'Em Straight

Schwartz used the MySQL acquisition to address naysayers in his blog.

"There are still folks in the world who don't believe there's an economic model behind open source -- they thus believe $1 billion is an outlandish price to pay for MySQL," he wrote. The most extreme critics, he said, see open source "as nothing more than playgrounds for hobbyists."

Schwartz continued: "Companies that freely distribute their products, rather than limit access via pricing or proprietary licensing, are simply prioritizing adoption over immediate revenue."

Schwartz portrayed the acquisition as the most important in Sun's history, creating new market opportunities. Sun, the fourth-largest server maker, has endured a 30 percent drop in its stock price over the past year.

Prime Acquisition

Sun is exploring other prospects for acquisitions, especially small-scale "tuck-in" deals, Schwartz said. However, he added, "MySQL was clearly the crown jewel of the open source marketplace."

The deal includes $800 million in cash and $200 million in assumed obligations. MySQL, which has 400 employees, was headed toward an initial public offering when Sun offered a premium price for the acquisition, Schwartz said.

Customers can now have "peace of mind" to apply MySQL to "mission critical" uses, Schwartz said because it will be now backed by Sun's 17,000-member global sales and support network .

"We will be able to accelerate the road map," said former MySQL CEO Marten Mickos, who was named senior vice president of Sun's newly formed database group within Sun's software division.

The China deal was jointly announced in Silicon Valley and Beijing. "We appreciate Sun's open source strategy, especially Sun's outstanding contribution in the open sourced (integrated circuits) area, and we encourage the active cooperation effort between China's universities and Sun in the teaching and research area," said Professor Zhao Qinping, vice minister of the Ministry of Education.