Update: EC opens deeper probe of Oracle-Sun merger

Regulator has 'serious concerns' about the deal's impact on competition in the database market

The European Commission opened an in-depth investigation into Oracle's planned $7.4 billion takeover of Sun Microsystems Thursday, citing "serious concerns" about the deal's effect on competition in the market for databases.

Europe's top competition authority called for a closer look at the deal after conducting a routine month-long examination. The Commission now has 90 working days, or until Jan. 19, 2010, to reach a decision. The Commission "has to examine very carefully the effects on competition in Europe when the world's leading proprietary database company proposes to take over the world's leading open source database company," said Competition Commissioner Neelie Kroes in a statement. Sun competes against Oracle, among others, with its open source database, MySQL.

[ This summer Sun stockholders approved the merger with Oracle. | InfoWorld's Paul Krill discussed many of the issues surrounding the acquisition of Sun in this reporter's notebook written when it appeared IBM, not Oracle, would buy Sun. | For full coverage of the Oracle-Sun deal, see InfoWorld's special report. ]

In a statement issued Thursday, Oracle acknowledged the Commission had extended its probe but provided no specific commentary on the decision. The statement also noted that the U.S. Department of Justice and Sun shareholders have already approved the merger. Sun did not immediately respond to a request for comment.The database market is highly concentrated with the three main competitors of proprietary databases -- Oracle, IBM and Microsoft -- controlling roughly 85 percent of the market in terms of revenue, the Commission said in a statement. Oracle is the market leader in proprietary databases, while Sun's MySQL database product is the leading open source database. The Oracle databases and Sun's MySQL "compete directly in many sectors of the database market and MySQL is widely expected to represent a greater competitive constraint as it becomes increasingly functional," the Commission said.

The Commission said that during its initial probe it found that the open-source nature of Sun's MySQL might not eliminate fully the potential for anti-competitive effects.

"In its in-depth investigation, the Commission will therefore address a number of issues, including Oracle's incentive to further develop MySQL as an open source database," the Commission said.

Earlier this week Sun reported a 31 percent drop in sales during the quarter running from April to June, compared with sales during the same period in 2008. Operating loss for the quarter was $218m, compared with an operating profit of $63m a year earlier.

The delays in the merger have taken a toll on Sun's hardware business, analysts say, as customers turn to rival vendors like Hewlett-Packard and IBM amid uncertainty over Oracle's intentions.

Oracle is apparently planning to feature Sun hardware's ability to run its software at the upcoming OpenWorld conference, but won't be able to provide a full product road map until the deal is complete.

Despite the extended probe, industry observers polled Thursday expressed doubt the merger will ultimately be blocked.

"I expect Oracle to appeal, and to appeal, until it gets its way," said Redmonk analyst James Governor. "All in all, I can understand why the EU is taking the action, but it's far from clear it will be successful. Oracle's legal team is pretty good."

"It's interesting to me that the [Commission] chose to focus most on MySQL," he added. "Short of asking Oracle to spin off MySQL, its not clear how a remedy could work."

The Commission could ask that Oracle help foster a market for third-party MySQL services, Governor said. But Oracle would be justified to say there is already evidence of one, given efforts like Monty Program Ab. The company, founded by MySQL creator Michael "Monty" Widenius, provides MySQL services and has also created an offshoot of the MySQL codebase.

Moreover, MySQL is "really a small part of Sun's business," and not "an enterprise backbone," whereas its hardware systems are, Governor said.

Overall, it makes sense that the Commission has taken this action, according to Roger Burkhardt, CEO of the open-source database company Ingres.

"I'm not surprised Europe is taking the lead on this. We find [European countries] are more concerned with promoting the use of open-source inside and outside government," he said.

However, it's unlikely the Commission will find cause to block the merger, he said.

MySQL, best known for its use supporting Web applications, "doesn't functionally compete with Oracle," and the amount of revenue Sun generates from software is small, Burkhardt said. "This is an acquisition of a hardware company by Oracle."

If and when the deal is completed, MySQL customers may have some things to worry about, such as increased fees for embedded licenses or support subscriptions, said developer and onetime MySQL employee Roland Bouman in a blog post.

But an Oracle-owned MySQL also presents new opportunities for both customers and Oracle itself, according to Bouman.

"It has been speculated that Oracle may try to 'upsell' the Oracle RDBMS to current MySQL enterprise users. However, I don't think that would be the brightest of moves," he wrote. "People running MySQL for Web-related applications won't move to Oracle. Period."

Instead, Oracle "can offer support for the most popular Web stack in the world," he added. "Now all these enterprise customers running expensive Oracle installations can finally build cheap Web sites based on MySQL and even get support from Oracle on connecting their back-end enterprise Oracle instances to the MySQL Web front ends."

Oracle could also benefit from the give-and-take and constant community interaction afforded by the open-source development process, which helps development teams understand what users really need, he said.

This story was updated on September 3, 2009

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