Wouldn’t you love to be a fly on the wall next time Oracle gets round to negotiating Java licences with IBM and Nokia?
Sun’s aim of countering Microsoft by getting the programming language and development tools widely adopted was a knock-out success, but its business model (make the profits on hardware) failed utterly. Oracle has been pretty clear that it won’t make that mistake.
But will Java licensees be willing to pay up to justify Larry Ellison’s claim that this is “the single most important software asset we have ever acquired”?
One person familiar with Oracle’s thinking goes even further, arguing that net of Sun’s cash, the $5.6bn it will cost to buy the company is more than justified simply for Oracle to get its hands on Java.
If so, then a back of the envelope calculation suggests Java would have to be capable of producing around $1.5bn a year in revenues (assuming you apply the same profit margins and earnings multiple as Oracle’s existing business.) That is a heck of a lot more than the $220m it made in Sun’s last fiscal year.
This is where IBM and Nokia come into the picture. Along with Oracle, IBM is the biggest pillar of Java in the enterprise technology world, while Nokia’s 40 per cent market share makes it a key player in the place where Java has been most successful: on mobile handsets.
Squeezing more out of IBM will not be easy. It has a ten-year licence granted by Sun that extends to 2016, with a change-in-control provision that protects the current terms in the event that Sun is taken over. We also hear that is has a “most-favoured customer” clause that guarantees it terms that are at least as good anyone else.
When the time for renegotiation finally comes around, will Oracle be in a position to force up the price? To some degree, certainly, but IBM has a nuclear option: thanks to the open source licence on the programming language it could politely decline Oracle’s terms and go its own way. As Yefim Natis at Gartner puts it: “If IBM decides to support a forked Java, that will change everything.”
Of course, it wouldn’t be able to call it Java, that trademark belongs to Sun. And it would have to ditch the blue coffee cup. But it could use exactly the same beans under a different name – how about Kona?
Dividing the Java community like that would weaken it in the long run and undermine the power of the ecosystem. But still, it is a reminder that Oracle will have to tread carefully. Similar considerations apply when it comes to Nokia.
All of this suggests that, to recoup what is plans to spend, Oracle will have to spread the net wider and persuade a whole new class of customers to pay for Java. It is a tantalysing prospect: with hundreds of millions of handsets running billions of Java applications, what if Oracle could extract just a tiny amount from each of those uses? Would the mobile ecosystem accept such a tax, and how would Oracle collect it?
Sun failed to find an answer to that question. Oracle clearly does not plan to make the same mistake.
