Subject: Re: Larry Ellison on FSBs
From: "Stephen J. Turnbull" <stephen@xemacs.org>
Date: Fri, 28 Apr 2006 00:18:13 +0900

>>>>> "Ben" == Ben Tilly <btilly@gmail.com> writes:

    Ben> You were positing that it is a disadvantage for MySQL that
    Ben> what they put together at cost to themselves can be borrowed
    Ben> for free by Oracle.  I'm pointing out that maintaining their
    Ben> software is not a cost center for MySQL, so that isn't a
    Ben> disadvantage.

Hm?  *By contract, those programmers cannot work on anything else.*
That's what "cost" means, resources that you can't use for some other
prupose any more.  Oracle's programmers can work on anything Oracle
wants them to, or it can fire them and just distribute (the free
portions of) MySQL.  That's what "zero cost" means.

Oracle is free in theory to respond to any threat posed by MySQL by
doing exactly the same.  As you've pointed out, it's harder to walk
the walk than to talk the talk, but to hurt Oracle, MySQL has to start
walking Oracle's walk, at least a little bit.  MySQL is *not* free to
do that, because it has small revenues, small margins on that revenue,
and much of its revenue is ear-marked for "listening to exactly what
the customers say, and then doing it to spec".

*By contract.*  Sure, Oracle is bound by tradition and shackled by its
own success, but companies do occasionally escape all that, and
reinvent themselves.  MySQL isn't allowed to.  Oracle sounds like the
process is well underway.

True, MySQL gets the advantage of being focused on what it must do.
But it is at the mercy of the market not moving too far, too fast in a
direction it's not prepared to go.  Oracle has the luxury (and the
risk) of trying to get to where the market is going before it gets
there, and winning big.  I wouldn't give odds on it succeeding at
that, but I'm sure they're not prohibitive if you're a betting kind-a
guy.

    Ben> If Oracle tries to get involved [in MySQL's market segment],

I'm sorry.  I admit that my words make it appear that I'm thinking
about Oracle trying to rub out MySQL, but I'm not.  I don't think they
would if they could, and I don't think they can without posting a
spectacular loss (by FSB standards, at any rate).

All I'm concerned with is the claim that MySQL (PostgreSQL, etc) poses
a threat to Oracle's profitability in the medium to long term, given
that LE has openly said that Oracle cannot compete with open source on
its own terms, and is already successfully moving his business model
in directions where Oracle won't have to compete with open source (or
so he says).

    Ben> What MySQL owns is a competitive advantage in maintaining the
    Ben> maintainership of an open source project.  That open source
    Ben> project is a future threat to Oracle's installed base.  It is
    Ben> both owned and open source.

Nobody owns a competitive advantage, with the important exception of
intellectual property.  Lacking a patent, they must earn it, and then
earn it again tomorrow.  I don't understand what you are talking about.

    Ben> Fine.  I can tell you from direct experience that Oracle's
    Ben> software is orders of magnitude more difficult to install and
    Ben> maintain than MySQL.

Nobody says otherwise.  I'm saying that Oracle-brand MySQL would be at
most one order of magnitude harder to install than true-blue MySQL,
and that should be enough to defend Oracle's market from MySQL.

    Ben> The result is that Oracle can't go head to head against MySQL
    Ben> and outcompete it unless Oracle is willing to throw a very
    Ben> large amount at the problem.  (And if they did, the result
    Ben> would be an opening for another company like MySQL.)

I'm sorry, you're responding to something I should not have written.
My bad, but can we get back to why MySQL poses a threat to Oracle, if
MySQL is operating in a market segment that Oracle doesn't even want
to penetrate, and never will?

    Ben> As for Larry's claim, I'm sure that he sees the need to
    Ben> diversify and I'm sure that he has done a lot of
    Ben> diversification.  But I strongly suspect that as Oracle the
    Ben> database falters in the market, Oracle the company will show
    Ben> the hurt.

Sure.  *If* the database falters any time soon.  As Mark Twain said,
"the reports of my death are greatly exaggerated."

    Ben> I don't believe that open source businesses will get to where
    Ben> his business did - it is the nature of the game that open
    Ben> source businesses have thinner profit margins.

That's not the "there" I'm talking about.  The "there" I'm talking
about is when open source becomes a threat to Oracle's margins.

    Ben> However I don't think that he'll find that his business
    Ben> forever has the kind of generous margins that it has become
    Ben> accustomed to.  I could be wrong.

Depends on how you define "his business".  If you mean "the Oracle
database licensing business", I'm sure you're right.  If you mean the
Oracle company, I'm willing to bet that LE will bequeath a very
healthy margin to his successor.

    Ben> When incumbents try to offer a low-cost alternative they
    Ben> generally fail.

Ever heard of Walmart? :-)

    Ben> Christensen would predict that MySQL will make plenty (for
    Ben> it) of money in market niches that Oracle can't be interested
    Ben> in because Oracle can't make enough money there to make a
    Ben> profit.

So would Larry Ellison.  What I want to know is how MySQL is going to
cause Ellison to spend more than 5 minutes thinking about it---until
he decides to buy it so he can get its programmers.

ObRef FSB:

As far as I can see the bottom line is still "On the one hand FSB is a
subclass of lifestyle business, and on the other no real threat to the
smarter incumbents."

-- 
Graduate School of Systems and Information Engineering   University of Tsukuba
http://turnbull.sk.tsukuba.ac.jp/        Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
        Economics of Information Communication and Computation Systems
          Experimental Economics, Microeconomic Theory, Game Theory