Java looked upon as the hottest prospect

The Java programming language, developed by James Gosling, the Sun Microsystems engineer, in the 1990s as an industry standard to counter the growing influence of Microsoft, has since become a key part of the software foundation for a generation of information technology systemsOracleIBM.
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Sun, however, failed to make much of a business out of Java, even though it is used on hundreds of millions of PCs, mobile phones and other digital gadgets. Licensed cheaply and operated as an open standard, it has become a shared resource for many of the software companies that exist outside the Microsoft camp.

Yet that history belies Java's true significance, at least according to Oracle. Larry Ellison, the software company's chief executive, yesterday declared Java "the singlemost important software asset we have ever acquired" - and at a price, after deducting Sun's net cash, that is only about half the amount Mr Ellison paid for PeopleSoft, his most famous software acquisition.

Along with Solaris, Sun's Unix computer operating system, Java is the overriding reason for Oracle's decision to swoop in at the eleventh hour and make an offer of more than $7bn for the company, Mr Ellison and other Oracle executives said.

The central position of Sun's software points to how the value has shifted in its wide portfolio of technologies as its core hardware business has crumbled. Although known mainly as a maker of servers, Sun has struggled as its customers have turned to cheaper, standardised machines based on chips made by Intel and Advanced Micro Devices.

Oracle made little effort yesterday to disguise the fact that it sees Sun's hardware business as a mere afterthought. Publicly, its executives said only that they would make sure hardware became a profitable division within Oracle.

According to one person close to the company that is likely to mean forcing through the sort of aggressive cost-cutting Sun itself had resisted as an independent company, and narrowing the range of products to focus on the sort of high-end, complex systems that command the highest prices.

Oracle has already taken a step into hardware, "bundling" database software into a machine from Hewlett-Packard so it can sell a complete system. Likewise, with Sun hardware, it will sell servers along with sector-specific software aimed, for example, at retailers or banks that amount to an "industry in a box", said Charles Phillips, co-president.

Yet this ability to combine hardware and software to build complete integrated IT systems, although loudly trumpeted by Oracle executives yesterday, is not the driving force behind the deal. In fact, some Silicon Valley veterans said they expected Oracle to sell off some of Sun's hardware lines, with storage products and Sparc microprocessors at the top of the list to sell.

Rather, Oracle has its eyes set firmly on the Sun software - and combining this with Oracle's own software throws up a "wildly profitable" opportunity that should make the Sun acquisition much more valuable than any of the other deals the acquisitive company has pulled off, according to the person close to Oracle.

Part of the reason, this person says, is that Oracle believes it can make far more from Java than Sun ever did. That is because Sun decided a decade ago virtually to give the software away to make sure it was widely adopted. Many of the Java licences - including one that Sun granted to Nokia - were for 10 years and come up for renewal next year, implying that, in future, Oracle will look to extract a higher price for the technology.

However, Oracle is likely to find it hard to extract a price for Solaris, the operating system that Sun was forced to turn into an open-source product to try to hold its own against rival Linux.

The fate of Solaris is central to Oracle's future: the company sells more database software licences on Solaris than on any other operating system, Mr Ellison said.

The final big software prize is MySQL, the open-source database program Sun bought last year for $1bn. Oracle's databases handle more massive workloads, but MySQL has been adopted rapidly by next-generation web companies looking to save on cost. With Oracle in charge of MySQL, it could reap revenue from related services contracts while ensuring that the programme does not develop into a more serious rival product.

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BY Joseph Menn and Richard Waters
Source：The Financial Times

© Copyright The Financial Times Ltd 2009.