Oracle-Sun Deal Hits EU Wall

Last week, the European Commission announced that it will launch an in-depth investigation under the EU Merger Regulation over Oracle’s impending acquisition of Sun Microsystems. The controversial move, which has caused a stir among industry watchers, could potentially derail the deal.

Already, IBM and HP have been riding on the uncertainty over the Oracle-Sun deal with campaigns to win over Sun customers. Their efforts are bearing fruit: Sun’s second quarter server revenues falling 37 percent to US$981 million compared to a year ago – the steepest decline among major vendors according to market numbers from analyst company IDC.

The rationale for the EC’s investigation stems from its initial market investigation, which “indicated that the proposed acquisition would raise serious doubts as to its compatibility with the [EU] Single Market because of competition concerns on the market for databases.”

The EC further noted that the deal would bring together two major competitors in the market for databases: “The database market is highly concentrated with the three main competitors of proprietary databases – Oracle, IBM and Microsoft – controlling approximately 85% of the market in terms of revenue. Oracle is the market leader in proprietary databases, while Sun’s MySQL database product is the leading open source database.”

It is puzzling how the EC came to this conclusion. It is widely known that Oracle and MySQL are targeting different segments of the database market. In an April 2009 interview with Forbes magazine, Marten Mickos, MySQL’s former chief, noted that MySQL works for Web-based applications, while Oracle is for older, legacy applications. MySQL has been growing like crazy and that hasn’t hurt Oracle, he said.

While it is the role of regulators to ensure competition and address antitrust concerns from market players, the EC needs to understand the market they are regulating. Clearly, EU regulators do not understand open source. Even if Oracle wanted to kill MySQL as an open source product, it wouldn’t be able to because no single person or company can own or control MySQL’s GPL-licensed source code or stifle its distribution and use. The EC, however, insists that its investigation has shown that “the open source nature of Sun’s MySQL might not eliminate fully the potential for anti-competitive effects”.

Just who the EC is protecting right now is unclear. With the success of the poaching efforts by Sun’s rivals, let’s hope the EC will act in the interest of Sun’s customers when it makes its final decision next January.