Safra Catz Meets with EU Competition Commissioner as Opposition to Oracle’s Sun Buy Grows

Oracle CEO Larry Ellison must feel under siege.

From the inception of Oracle’s announced $7.4-billion acquisition of Sun Microsystems last spring, he’s had to contend with staunch opposition to the deal coming from the usual suspects, including Microsoft and SAP.

Now, though, others are jumping into the fray to express their resistance to the merger amid sullen rumblings that regulators at the European Commission (EC) are in a truculent mood, ready to push Oracle to the wall for substantial concessions.

Those concessions would involve Oracle spinning off or otherwise divesting MySQL, the open-source database property it hopes to inherit in the Sun acquisition.

That’s the prescribed course of action Michael ‘Monty’ Widenius, the creator of open-source database MySQL and founder of the namesake company, would like Oracle to follow. It’s also the path that entrepreneur and EU strategist Florian Mueller would like Oracle to trod. Open-source activist Richard Stallman and the non-profit organizations Knowledge Ecology International (KEI) and Open Rights Group (ORG) have also issued a strongly worded letter to EU competition commissioner Neelie Kroes, demanding that Oracle not be allowed to gain ownership of MySQL through its pending acquisition of Sun.

As we all know by now, the EC has subjected Oracle’s Sun acquisition to an extended regulatory review that could last until January 19, though some are speculating that the regulatory body will give Oracle a strong indication of which way the wind is blowing well before then.

We also know that Ellison has spoken publicly and forcefully of his desire to own and retain MySQL. He says he sees it as an open-source bulwark against IBM, but savvy observers think Oracle actually intends to use MySQL as a competitive cudgel against Microsoft in the world’s fast-growing developing markets and among small- and -mid-size businesses. In both those markets, Oracle’s proprietary databases have limited exposure, too expensive for most buyers.

According to Evans Data, Microsoft SQL Server is the most popular database in the emerging markets of China, India, Eastern Europe, and Latin America, but MySQL isn’t far behind. Evans says more than 50 percent of developers in emerging-market countries said they are using Microsoft’s SQL Server, but 46 percent said they are using MySQL. Microsoft’s SQL Server leads in China and Latin America, and MySQL is slightly stronger in India and Latin America.

Those markets are largely untapped for Oracle. It would stand to gain a lot from having a reasonably priced database offering that could generate revenue and profitability from fast-growing overseas markets expected to outpace North America and Europe for the foreseeable future.

Thus, opponents of the Sun deal who claim that Oracle wishes to eradicate MySQL are wrong. MySQL fills a gaping hole in Oracle’s product strategy.

A relevant question is whether Oracle will hobble or technically impair MySQL so that it never develops into a scalable, large-enterprise threat to its proprietary database franchise. That would be a difficult balancing act for Oracle to manage: doing enough to keep MySQL in a price-performance battle with Microsoft for patronage in developing markets but not going so far as to transform it into a danger to Oracle’s establish products. Then again, Oracle relishes those sorts of complex challenges and complicated games.

Oracle’s plans for MySQL could be a moot point if the European regulators decide that a worldwide database market carved up among Oracle, IBM, and Microsoft — a troika that currently holds about 85-percent of the space — would be deleterious to competition and to buyers of the technology.

Ultimately, then, the big question is whether the European Commission will approve Oracle’s Sun acquisition. With opposition mounting, Oracle decided the best defense is a good offense. Accordingly, company president Safra Catz met earlier today with European Union Competition Commissioner Neelie Kroes to discuss objections to the pending deal.

Initial reports on the meeting suggest Oracle has some work to do.

Said Jonathan Todd, a spokesman for Kroes:

“Kroes expressed her disappointment that Oracle failed to produce, despite repeated requests, either hard evidence that there were no competition problems or a proposal for a remedy to the competition concerns identified by the commission. Kroes reiterated to Catz the commission’s willingness to move quickly towards a decision but underlined that a rapid solution lies in Oracle’s hands.”

A reasonable extrapolation is that Oracle has failed to demonstrate that its ownership of MySQL will result in healthy database competition. Oracle can, and probably will, take another crack at making its case. At some point, though, as time drags and Sun’s losses of $100 million per month accrue — and as the company is forced to shed staff to reduce costs — Oracle might be forced to consider the unthinkable: a climbdown, a retreat.

Yes, there’s a possibility it might be forced to surrender MySQL to get this deal done. At the beginning of the regulatory-review process, I didn’t think it would come to that, but indications now suggest the EC position has hardened rather than softened.

Presuming that to be true, what does Oracle do? Some presupposed that MySQL wasn’t even an afterthought in Oracle’s calculations ahead of the Sun acquisition. We now know MySQL was more than a secondary consideration. What we don’t know is whether Oracle will want to pay $7.4 billion for a Sun Microsystems that doesn’t include MySQL.

If the EC remains unmoved by Oracle’s blandishments and protestations, we might get an answer to that question.

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