Two mammoth deals in one day speak volumes about the state of the software business.

Oracle finally consumated its purchase of BEA. Although nobody really thought the deal was dead, what was surprising was that Oracle paid $19.375 a share for the company it said it wouldn't go above $17 for.

The fact is these companies needed each other - badly. BEA risked walking away from its best offer and into a string of shareholder lawsuits and possibly being sidelined by vendor consolidation in a few short years.

Oracle needed to bag an elephant - and quick. CEO Larry Ellison has publicly stated to investors that his company would grow earnings 20 percent a year for the next decade. How can he deliver if he doesn't make one mammoth acquisition a year? Starting with PeopleSoft, then Siebel and Hyperion, Oracle has managed to buy and swallow some significant players with impressive regularity. Walking away from BEA wasn't really an option.

The good thing is that Oracle knows how to acquire companies. The company has a formula for execution and integration of acquired offerings. The outcome will likely be a good one for BEA's long term survival.

On the other hand, the forecast for Sun's acquisition of MySQL is far from certain. The $1 billion Sun paid to keep MySQL from debuting on the public markets this year is no small change.

Unlike the symbolic change of the company's ticker from "SUNW" to "JAVA" last August, Sun's purchase of MySQL shows that CEO Jonathan Schwartz means business: Sun wants to be the open source software company. The deal vaults Sun into the realm of Red Hat and positions it immediately where Schwartz wants it.

But Sun's acquisition track record has been checkered. Over the years, the company has acquired vendors in a variety of markets - application servers, development tools and more - with mixed success.

So why would a veteran disruptor and ready-to-IPO MySQL sell to Sun? Perhaps MySQL heard some concrete, savvy thinking about how the deal would propel the combined entity to the top of the open source vendor ladder - something MySQL couldn't do alone. Perhaps there was a bit of fear that the slowing U.S. economy would make its IPO less than stellar. Perhaps MySQL needed the financial security of a Sun to help it build its business away from the eyes of investor scrutiny.

Whatever the reason, MySQL's IPO is history. And BEA is off the table. And the implications for the software business are big.

• Open source is worth paying for. Debates about business models and profit making aside, the potential is big for open source to take a bite out of the traditional enterprise software market.
• Consolidation will continue. Some analysts wondered why BEA was being pressured to sell itself. The fact is that as long as Oracle, HP and other megavendors remain on the hunt, even the largest elephants will not be safe alone.
• Innovation will primarily remain the stuff of startups. Investor pressure for growth at the big vendors will keep the startups and small-to-mid-sized vendors in charge of innovation and pushing the software industry forward.

Whatever comes next, 2008 will be an exciting year for software. The bettor's favorite elephant for 2009? Red Hat - when acquired by Oracle.


M.R. Rangaswami is co-founder of Sand Hill Group and publisher of SandHill.com. He has held global VP marketing positions at Baan Company, Avalon Software, and Oracle Corporation. M.R. was profiled on the front page of the Wall Street Journal and has been named in Forbes' "Midas 100 List" as one of the most influential investors in technology.