But now, Oracle and other database suppliers face a growing threat from below: "open source" databases, which give customers a free or low-cost alternative to commercial products. While the impact has been small so far, some analysts expect open-source software to eventually turn databases into a low-cost commodity, just as the open-source Linux operating system is posing a threat to Microsoft Corp.'s Windows franchise.
One user of an open-source database is Cox Communications Inc. The Atlanta-based cable-TV operator is using the software to monitor the performance of more than 1.5 million cable modems providing customers with high-speed Internet access. Mark Cotner, manager of network application development, originally got the system up and running on spare hardware and free software he downloaded from the Web site of MySQL AB, based in Sweden. The database now has 2.4 billion rows of information, totaling about 600 gigabytes of data.
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Once Cox management was sold on the idea, some executives suggested transferring the operation to an Oracle system, Mr. Cotner says. For Cox's system, the price for licensing Oracle's system would have totaled about $300,000, not including a service contract. But even after Cox upgraded to the commercial version of the MySQL database, the company's licensing costs were under $1,000. Mr. Cotner also pays $12,000 a year for support services.
"Spending the extra money wasn't really justified," Mr. Cotner says. "You have to have complaints before you decide to spend more money on Oracle, and we've been very happy."
Oracle remains the leader in the $13 billion-a-year market for relational databases, the underlying software needed to run more specialized business applications, such as those sold by SAP AG, PeopleSoft and Oracle itself. But the total database market is stagnant, Oracle has been losing market share to Microsoft and International Business Machines Corp., and prices are falling.
Of course, the spread of open-source software threatens all of the commercial database providers. And some analysts expect that Microsoft's SQL Server, which is generally targeted at smaller businesses, may be most immediately affected. But the premium prices Oracle traditionally has been able to command as the market leader have the farthest to fall.
"It's very hard to compete with free," says John Chen, chief executive of Sybase Inc., Dublin, Calif., the No. 4 database provider. "It lowers the price point."
Oracle executives will discuss industry trends Wednesday at an annual meeting with financial analysts at the company's headquarters in Redwood Shores, Calif. Ken Jacobs, Oracle's vice president for product strategy, says MySQL's offering "is certainly interesting, but I don't see it as competition for Oracle. Not now and not for some time to come."
He says the open-source offerings are years behind Oracle's products in terms of features and functionality. And he says Oracle doesn't specifically target the types of customers that are using MySQL to run simple Web sites, focusing instead on "mission-critical, transaction-processing applications" that crunch large amounts of data and require complex statistical analysis.
"For years I've heard people say the database is being commoditized and I don't believe that," Mr. Jacobs says, though he acknowledges that over time MySQL and other open-source offerings will compete with Oracle in some areas.
Several years ago, Microsoft dismissed the threat from Linux, but more recently it has focused on it as a primary competitor. Kevin Harvey, a venture capitalist with Benchmark Capital in Menlo Park, Calif., says open-source databases are at about the same stage of development as Linux was several years ago. Benchmark last month put up the majority of MySQL's $19.5 million round of venture financing.
"The software business is being commoditized in a lot of ways," Mr. Harvey says. Areas that are ripe for change, he argues, have three characteristics, all of which apply to database systems: They are in widespread use, the industry has settled on common standards, and new features are less important than price and performance. Like Linux, he says, MySQL will first be used in new, Web-based applications and then be pulled by customers into more traditional corporate-computing functions. "It erodes from the bottom up," Mr. Harvey says.
MySQL's chief executive, Marten Mickos, makes a virtue of his product's stripped-down simplicity. "Software shouldn't be glorified," he says. "We say, 'Let's do this as compactly as possible and then sell it at a price that blows the competition away.' "
Unlike some other open-source software companies, MySQL offers both a free open-source license and a traditional commercial license, for which the company charges a flat licensing fee of $440 for each server computer running the software.
MySQL has only about 4,000 paying customers out of approximately four million active installations, but the Finnish entrepreneur doesn't mind. "With four million users it can't be bad," Mr. Mickos says. "Big customers know that hundreds of thousands of clever Indians and Russians and Americans are using the product. The value of that [in finding bugs and adding features] is astounding. That's the true power of open source."
Oracle's pricing is based on either the number of users with access to the software or the number of microprocessors in the computer running the program. Oracle's "enterprise edition," for example, is priced at $800 a user or $40,000 a processor, plus a 22% annual fee for software updates. A less powerful "standard edition" is priced at $300 a user or $15,000 a processor, with the same 22% annual maintenance fee.
Pricing made the difference to Westone Laboratories Inc., a closely held maker of ear inserts for hearing aids and other devices in Colorado Springs, Colo. When Cal Pearson, Westone's information technology director, needed to replace the 120-employee company's overloaded customer tracking and financial database systems, he was quoted a price of more than $160,000 for Oracle's system.
Instead, Mr. Pearson's team downloaded MySQL onto a personal computer and spent less than $5,000. Even without paying for support, his developers were able to get answers to questions within minutes by posting messages on a mailing list of other MySQL users.
Now, Westone is expanding the system to three remote locations and linking its order entry system with its customer database. Mr. Pearson says he now is happily paying MySQL's modest licensing fee and several hundred dollars a year for support. "Even with my employee costs, I've yet to spend what would have been my initial expenditure on Oracle."
Write to David Bank at david.bank@wsj.com3
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