Sun Microsystems will pay $1 billion for Swedish software company MySQL, whose open source database is used for some of the most widely visited Web sites in the world.
Sun said the deal will augment its position in the enterprise IT market, including the $15 billion database market.
Sun said MySQL's product line will help it give further support to the open source Web application platform known as LAMP, the acronym for the Linux OS, Apache Web server, MySQL database, and the PHP/Perl programming languages.
MySQL's strength in SaaS (software as a service) offerings -- where applications are delivered over the Internet through a Web browser -- are also a plus, Sun said.
Databases are crucial for Internet-based applications in sites offering a range of services, from e-commerce to social networking.
Sun will pay $800 million in cash and $200 million in options, and the deal is expected to close by the end of Sun's 2008 fiscal year, which will end June 30.
Sun's acquisition ends speculation that MySQL might become a public company.
MySQL has become a formidable competitor to other relational database management systems from companies such as Oracle and IBM. The database itself is free for people to download, and MySQL makes money by offering subscription support packages.
MySQL CEO Marten Mickos -- whose business cards list him as "Open Sourcerer"-- will join Sun's executive team. MySQL will be folded into Sun's Software, Sales and Service organizations.
Sun said it plans to create a joint team to integrate MySQL, which has 400 employees in 25 countries, into its operations.
For Sun, the acquisition marks another phase in its turnaround after foundering following the dot-com bubble burst.
Since being appointed in April 2006, CEO Jonathan Schwartz has helped revive Sun's software and storage businesses and returned the company to a more stable financial footing.
For its first fiscal quarter of 2008 that ended Sept. 30, Sun reported net income of $89 million. It lost $56 million for the same period a year before.
Since Sun's server software and OS are free, the 32,000-employee company depends on revenue from hardware sales and support services.
In a conference call, Schwartz said while MySQL is used by companies such as Google and Facebook, it's not widely deployed in mission-critical environments due to support concerns.
Sun, however, is in a good position to build enterprise confidence in MySQL support, Schwartz said. "That's exactly what we will be focused on immediately as we prepare to put the two companies together," he said, calling the deal the most important in Sun's history.
Further, Sun will have an opportunity to offer more of its services and products, such as applications and authentication technology, to MySQL users, Schwartz said.
Mickos said MySQL has gone from "frugal" beginnings to the enterprise market, and is gaining traction in industries such as telecom operators. "We are the world's most popular open source database," Mickos said.
The pending acquisition of MySQL will not dim Sun's support for another open source database, PostgreSQL, as well as its Java DB, said Rich Green, Sun's executive vice president of software. Java DB is Sun's supported distribution of the open source Apache Derby database.
One of the major deciding factors in acquiring MySQL was its use of pluggable components, which allows it to be customized for network operators and developers of embedded database applications, Green said.
Sun said MySQL will gain new distribution through companies such as Intel, IBM, and Dell via existing relationships Sun has with those vendors.
Sun also said it will also work on optimizing the LAMP stack to run on GNU/Linux, Microsoft's Windows OS, and its OpenSolaris OS.
Sun is in need of a database management system, one analyst said. Its choice of MySQL "makes sense with Sun's open source orientation," said James Kobielus, senior analyst with Forrester Research.
MySQL's acquisition may also help convince people that open source software isn't about a few developers working "in a garage with a lava lamp," said David Mitchell, senior vice president for IT research at Ovum.
Ovum values the open source services market between $5 billion to $6 billion, and believes it is an area that is prime for a major player to step in, Mitchell said.
"This just proves there is money to be made in open source software," he said.
(Peter Sayer in Paris contributed to this story.)