BloggingStocks Interview: Expert shows why Sun spent $1 billion on free software

Business models vary from pure services (support and maintenance, mostly) to upsell (a free version with limited features and a commercial version with more advance features...for a price) to dual licensing (GPL version with source code contribution requirements or the same software released under a commercial license with no contribution requirements) to hosting (software as a service model) and a few others. We're still early in the process, so the business models are being worked out and we're seeing which models will fail and which will ultimately succeed. It's not entirely clear that the models in use today will be the ones which will ultimately succeed.

Your take on the MySQL deal?

MySQL is the most popular open source database technology in the market, and is the 'M' in the LAMP stack. Sun's $1b acquisition of MySQL AB puts the company into a leadership position in the LAMP stack. We're likely to see more moves from Sun in the future to move its open source strategy to the next level. Up to this point, Sun's database strategy has been with partnering with companies such as Oracle, and supporting the PostgreSQL open source community. This is a major shift in Sun's database strategy as a technology supplier.

There were a number of potential pre-IPO suitors for MySQL AB, Sun being one of them. This is a great move for Sun, and answers the question of 'SunDB' that Scott McNealy posed several years ago. In that time, Sun has pursued a PostgreSQL strategy in the open source space, and this raises a whole bunch of issues concerning Sun's close ties to Oracle, as well as their investment in PostgreSQL. Sun has been struggling to build a recurring software maintenance revenue stream with its open source software releases, and this acquisition should help considerably in building out this business. 2008 looks to be an exciting year for open source M&A.

Expect other deals in the sector for 2008?

Yes, we expect the number of open source deals to set a new record in 2008. There are a number of reasons for this. On the funding side, there are many VC-backed startups that drew in rounds in previous years and have since built significant customer lists; these startups are ready to be "harvested" by larger companies. In fact, we saw backing for open source startups hit a peak in 2006 and tail off in 2007. In the first three quarters of 2007, VC investment in open source companies hit $267m, down about one-quarter from the $340m in the same period of 2006, according to our CAOS research. Many of the startups have moved from tracking downloads while spending venture money to actually counting money they bring in, which is far more valuable to an acquirer.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.