sun-mysql.jpgSun said today it will acquire open source database company MySQL for about $1 billion, a deal that would keep Sun at the center of the thriving open source software industry (see the announcement here).

The deal is for $800 million cash and $200 million in stock.

Simultaneously, in big news for the corporate “enterprise” industry, database software giant Oracle said it had reached an agreement to acquire middleware giant BEA for $8.5 billion, a few months after its original offer offer of $6.7 bilion was rejected by BEA.

oracle-bea.jpgBoth deals are significant for the Internet industry, but the first is most important for the start-up industry VentureBeat covers.

MySQL has become increasingly popular as a low-cost database (its basic version is free) for Web applications. The database is the core of a Web company’s information system, a sort of container of software. VentureBeat itself, for example, uses MySQL, for its database. VentureBeat uses the WordPress blogging software, to manage the content of articles, which works hand in hand with MySQL. MySQL claims 10o million copies have been downloaded, though some users are bound to have downloaded several versions, and the active number is likely smaller. Still, 50,000 copies are being downloaded each day, the company says.

The flip side of this, though, is that MySQL has never been a major generator of revenue. The database market is huge, with Sun estimating it as worth $15 billion. However MySQL has gotten only a sliver of that. We use MySQL, but we aren’t required to pay for it, and so we can’t be considered a “customer.” Its ubiquity has served it well, however, and it has tried to make money from offering support services. While some questioned whether it had the muscle to do well in the public market, insiders said it had the chops to do so. Last year, it signaled it planned to go public.

“MySQL clearly could have gone public,” Kevin Harvey, partner at Benchmark Capital and chairman of MySQL told VentureBeat this morning in a call. “Everyone felt that this [Sun acquisition] was a better outcome for the MySQL community, and better financially as well.”

harvey.jpgWith his investment in MySQL, Harvey (pictured left) has solidified himself as the venture industry’s leading investor in open source. He also previously backed Zimbra and RedHat, two big wins.

With MySQL part of the modern infrastructure software being standardized in company data centers, Sun’s reach into large corporations with its server products makes it the best partner to help push MySQL’s adoption, Harvey said.

This also keeps Sun in the heart of the thriving open source movement, and the growing Web application business centered around MySQL. MySQL has become the dominant database within the most popular “stacks” of open source services. It is the “M” in the LAMP, MAMP, and WAMP platforms (Linux/Mac/Windows-Apache-MySQL-PHP/Perl/Python). That’s where most of the growth is. Modern companies are designing their servers with this Web 2.0 stack from the beginning. MySQL, for example, counts Facebook, Google and Yahoo as its customers.

Oracle’s database products, meanwhile, are becoming more and more the domain of large companies that require extremely robust service. In the late 1990’s, you weren’t taken seriously as a company if you didn’t have an Oracle database. Now, if you’re a new company, its not worth spending resources on Oracle. For 90 percent of new “quick and dirty” applications, MySQL is the way to go. “Oracle has the innovator’s dilemma,” Harvey said. “They have a business model that doesn’t fit the new web economy. They’re a prisoner of their business model.”

Will Oracle buy Sun? “They’re so acquisitive, I wouldn’t rule anything out,” Harvey added.

BEA, Oracle’s latest target in a string of 30 companies acquired over the last three years, is one of the market’s leading application servers, and is popular mainly within large companies. But still, it isn’t part of the fast-emerging, low-cost open source movement. JBoss (bought by RedHat) is a major player there, and there are others, such as Interface21.

Sun, meanwhile, has a range of open source products, from the office application suite OpenOffice, to the server product OpenSolaris and application language open Java.

marten.jpgOne question is how Sun will deal with MySQL’s licensing. MySQL is owned by the for-profit company MySQL AB, headquartered in Sweden and Silicon Valley (Cupertino, Calif.) which is owns the copyright to the codebase. However, the MySQL project’s source code is freely available under terms of the GNU General Public License.

Sun said MySQL will be integrated into Sun’s software, sales and service organizations, and will be distributed through all of Sun’s channels including its OEM deals with IBM and Dell. MySQL’s CEO, Marten Mickos (pictured here), is expected to join Sun’s senior executive team. The deal is expected to be finalized in the third quarter.

MySQL was backed with about $40 million in venture capital since 2001, led by Benchmark Capital, which should earn a smart return from the acquisition. Other investors included Intel, Red Hat Ventures, SAP, Scope Venture Capital, Index Ventures, and Eficor Oyi.

What the deal also removes doubt that open source is great area for venture investing. Benchmark, in particular, has benefited from the trend, having invested, as mentioned, in Redhat and Zimbra. Benchmark partner Peter Fenton also backed JBoss, but did so while he was at Accel.

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