The Hindu Business Line : Some `open' muscle-building

STRANGE bedfellows... eBay and Skype... .Google and Sun Microsystems... Oracle and Innobase. This expression probably best sums up Internet auction site eBay's $2.6-billion acquisition of Skype, an Internet phone company. Or for that matter, a strategic alliance that Sun Microsystems struck with Google recently or the latest acquisition by Oracle of the Finland-based open source database company Innobase for an undisclosed sum.

However strange these may seem, the three different acquisitions or alliances signed over the past month are poised to have long-term significance in the growth and direction of the information technology and telecom sectors.

Obviously, to see these developments in isolation will tantamount to taking a short-sighted view.

These are part of the ongoing bets that the bigger players are taking on a massive scale across the entire tech sector. For instance, for creating new revenue sources, IBM is opening up some of its patents and software in order to mine greater opportunities for higher value-added products and services; for expanding geographic footprint, Yahoo has entered into a strategic partnership with Alibaba.com, China's largest e-commerce company, to expand into China and to embark on a consolidation drive in software products, Oracle Corporation is pushing through high-profile acquisitions of PeopleSoft, Siebel, Retek and i-flex to create an integrated suite to customers that straddle applications, middleware and database.

In a sense, the three latest developments listed above are no different from the rest. Each of these represents the need for large tech companies to either stay ahead of the competitive curve or introduce a `disruptive' change element in the technology process. Irrespective of whether they are reactive or proactive, each of these can potentially open up the sector in wholly new directions that were not visible before.

Betting on online communities

Whichever way you look at technology today, whether through the prism of Microsoft's efforts at building online collaboration tools for e-mail, with its recent acquisition of Groove Networks or the frenzied drive by Google to create online networks through Orkut and Google Groups or Yahoo's drive towards tapping the Chinese market through Alibaba, the underlying element is common: building a global online community. And nobody realises this better than eBay, the largest and dominant Internet auction site in the world.

Seen from this perspective of building online communities, eBay's $2.6-billion acquisition of Luxembourg-based Skype makes a lot of sense. One, eBay can straightaway offer Skype's `free' and `premium' Internet phone services to over 155 million registered users of eBay. And at the same time, nearly 55 million users of Skype also get access to eBay, changing the North American focussed customer profile of eBay. Two, it erects a significant barrier for any other player entering the Internet auction business.

As an eBay press release rightly points out, "Skype, eBay and PayPal (its payment platform) will create an unparalleled e-commerce and communications engine for buyers and sellers around the world." Though the strategic intent seems clear, the merits of the $2.6 to $4 billion valuation worked out for Skype will remain a debatable question for quite some time to come.

Power of partnerships and open standards

It is easy to be dismissive of the Sun-Google partnership as nothing short of a publicity stunt. And earlier this month, there was a sense of disappointment all round, when Sun Microsystems announced that it had agreed to integrate and distribute the Google Toolbar alongwith its Java software and OpenOffice desktop suite. This is a tentative first step by Google to forge an alliance. Sun's and Google's innovation to use the net browser to move the power away from the desktop towards other devices can change the dynamics of the software game.

As Jonathan Schwartz, President, Sun Microsystems, states in his blog, "I have been nothing if not tediously repetitive in stating my belief that volume begets value — best demonstrated by the rise of the free software movement (whose volume is derived from its price, its value from innovation, in all forms). The cost of reaching customers, traditionally the most expensive part of building a business, has largely been eliminated — resulting in massive, global participation. Value's literally everywhere the network travels, on every device it touches (and it's subsidising some very interesting ideas)."

One of the interesting ideas that has already been spawned is Google's recent proposal to provide free wireless Internet services (or Wi-Fi) to the entire city of San Francisco. This, according to Google, will be funded through online advertising.

In the same vein, Oracle's acquisition of Innobase has sent jitters among open source advocates of MySQL, which has built market share at the lower end of the database market, since it is cheaper than Oracle's, IBM's and Microsoft's database products. Since Innobase develops open source database technology that is distributed as a part of the MySQL database, most commentators have jumped to the conclusion that Oracle will be stifling the growth of MySQL database to protect its own interest.

It is possible. However, if one goes by Oracle's recent decision to support IBM's WebSphere middleware to talk to applications in Oracle's Project Fusion or Oracle allowing i-flex or Retek, its recent acquisitions to continue working on the IBM DB2 database, it appears to have prudently advocated the cause of open standards. Having supported the Linux adoption in a big way, just like its rival IBM, to take on competition from Microsoft, Oracle realises that its ability to tap the application developer market will get stronger through the latest Innobase acquisition than otherwise. And Oracle realises that open source technology alone will widen the overall commoditised market for database.

As Scott McNealy, Chairman and CEO, Sun Microsystems, said in his presentation titled, "Welcome to the Participation Age" at the recently concluded Oracle OpenWorld, 2005, "Sharing creates communities and communities create markets." These may turn out to be prophetic words, which the tech community can choose to ignore at their own expense.

Blogs for reference on the Sun-Google partnership:

http://blogs.sun.com/roller/

page/jonathan?entry=putting_

the_sun_google_partnership

http://blogs.sun.com/

roller/page/jonathan/20051001

maverick@thehindu.co.in

Picture by S. Mahinsha

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