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Oracle's Ellison Ponders Owning a Linux Distro

I don't know from personal experience, but I suspect that when you are rich, you might have a tendency to think that you can buy yourself out of any trouble and into any opportunity. If you are rich enough, and your friends are rich enough, that brings a lot more power to bear, and you can shape the political arguments or businesses and the markets they play in. This must be what it is like to be Larry Ellison, founder and chairman of Oracle, and the other titans of the IT industry.

And it must be nice.

The Financial Times spoke to Ellison recently and published a story today that confirmed that Ellison and probably Oracle, too, had some aspirations to own an operating system, and one based on the Linux kernel at that. "I'd like to have a complete stack," Ellison told the Financial Times. "We're missing an operating system. You could argue that it makes a lot of sense for us to look at distributing and supporting Linux."

Now, wouldn't it be funny if commercial Linux distributor Red Hat, having beaten Oracle to the punch with its $350 million acquisition of Oracle rival and open source middleware maker JBoss, finds itself in a hostile takeover situation where Oracle tries to eat Red Hat and JBoss in one big gulp?

This would not be the first time that Oracle had a controlling stake in a Linux distributor, although you wouldn't know that from reading all of the stories in the financial and trade press. Oracle, as it turns out, has a 58.5 percent stake in a little operation called Miracle Linux, which is a venture that Oracle launched in June 2000 to help foster a Japanese distribution of Linux with server maker NEC. Miracle Linux has a green logo that uses the same exact font as the red Oracle logo, which is a dead giveaway to the company's origin. And, Miracle Linux also has an apparently untranslatable slogan, which comes across as "Do the Next, Open Your Window" when it is converted from Japanese to English. (Honestly, this sounds more like an illegal source code copy of Windows Server 2003 than Linux.)

Miracle Linux has been working with Red Flag Linux of China and Haansoft Linux of Korea to create a pan-Asian Linux appropriately called Asianux. In January, there were rumors that these three partners would form a new company, with Red Flag Linux will having a 50 percent share and Miracle Linux and Haansoft each getting a 25 percent stake. Nothing was ever heard about this again, but if it did happen (or does eventually), that will give Oracle a 14.6 percent stake in a distributor of Linux for Asia. This is not exactly a dominant position--the kind that Oracle likes to have in the markets it plays in.

If there is any miracle, it is that Oracle didn't buy Red Hat when it was trading in the $5 to $10 per share range in 2003 and 2004 and when it fell again to the $10 per share range in early 2005, or that it hasn't bought Novell already or SUSE before Novell bought it in November 2003 for $210 million. That was pocket change. Now, Red Hat is making money, pulling down profits like few software companies can do, albeit on a small revenue base compared to the likes of Oracle. In the final quarter of fiscal 2006, which runs from December 2005 through February 2006, Red Hat reported sales of $78.7 million, up 37 percent from the prior year, and brought $28.7 million of that to the bottom line. This is an astounding 37 percent of revenue as net--not gross--profit. It is hard to say how scalable that is, and perhaps a company like Oracle wants to find out. But, if you read the interview in the Financial Times, you will not get the impression that Ellison thinks Red Hat is worth the $5 billion market capitalization it commands. The JBoss acquisition puts Red Hat in contention with Oracle and IBM, which provide their own middleware stacks, and Red Hat is widely expected to round out its software stack at some point with an integrated relational database, which would put it in further contention with Oracle and IBM, which are, along with Microsoft, the dominant database suppliers in the world.

Ellison said in the Financial Times report that he had considered a lot of different open source acquisitions, and among them were Novell, for its SUSE Linux distribution. But ultimately, Ellison decided that buying Novell was not the right move. For all of its woes, Novell still has a market capitalization of nearly $3 billion, and it would be the easiest way for Novell to become a serious and large competitor to Red Hat. The question you have to ask is this: Would Novell fetch a premium over that price if it went into play? And if not, is even $3 billion too much to buy an Oracle-controlled Linux distribution? With Oracle's deep expertise in software in general and in supporting Linux and Unix in particular, it is hard to imagine that Oracle could not take what it learned from Miracle Linux and just start from scratch for a lot less money. If Oracle can't make a new Linux distro with $1 billion cash, I know a bunch of people who can.

It would be even interesting to see a Miracle Unix distribution, based on the open source BSD operating system. If Oracle doesn't want Red Hat to turn into another Microsoft, then why promote the AIX Unix variant of database and middleware rival IBM, or the Solaris variant of middleware rival and probably soon-to-be database rival Sun Microsystems? Why stop there? Why let AIX, Solaris, or HP-UX generate any money for these three vendors? IBM and Hewlett-Packard refuse to support their respective AIX and HP-UX Unix variants on cheap 64-bit Xeon or Opteron iron, so why not make an Oracle Unix that does? (Sun Microsystems, to its credit, does support these processors with its Solaris 10 operating system.) Why not take all the money on all the platforms, and while you are at it Larry, why not compel Michael Dell to support Opteron processors to suit your needs with this hypothetical Miracle Linux and Miracle Unix?

Ellison's comments bring up more questions than they answer, which is why he is fun to be around. But one thing is for certain. If Oracle buys or builds its own Linux distro, the others are not going to be as enthusiastic about supporting Oracle databases and middleware on their Linuxes. And that could hurt Oracle. Then again, Oracle has no great love of Microsoft, and the Oracle database is the most popular database for big iron running Windows. So maybe not.

Oracle's Ellison Ponders Owning a Linux Distro - Monday, April 17, 2006 -

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