For evidence of how seriously Microsoft is starting to take the market for virtualisation software, take a look at its acquisition today of Calista Technologies. This is a company that was launched as recently as 2006. It has raised only one round of venture capital (around $7m) and it has yet to ship any products.

Yet Calista got prominent billing today as Microsoft put some of the pieces in place for its attack on a market that represents both huge potential and a sizeable threat for its server and desktop businesses. No price for Calista was disclosed but when we spoke to Barry Eggers of Lightspeed Ventures, one of the company’s backers, he left no doubt that Microsoft is paying up in its efforts to catch up with VMWare (latest profile here):

We’re not in the business of selling good technologies early. Obviously it has to be a good deal for everybody all around.

Calista’s software is meant to make rich media work better on virtualised desktops - for instance, the graphics in Windows Vista could be made to work smoothly on a PC which does not run an instance of the software, but which is drawing it from a remote server.

Yet while Microsoft is racing to buy component technologies, it has yet to put the most important building block in pace. It still seems that a hypervisor for Windows - the key piece of software that lets multiple operating systems run on a single machine - will not be available in its server software until the second half of this year.

As happened with search technology, Microsoft has fallen well behind a competitor (in this case VMWare) that is moving fast to tighten its grip on a new market. Unlike search, though, Microsoft may be able to apply some of its most effective competitive weapons - "bundling" the software with its server products, using its control of desktop and server licensing - to make a dent.

You could forgive Kevin Harvey of Benchmark Capital if he sounded a little smug when I spoke to him earlier today about the eye-catching $1bn sale of MySQL. A longtime venture investor in open source companies, Harvey has had to put up with a few knocks along the way. As he put it:

When we first invested in Red Hat it was thought to be totally insane. When we funded MySQL it was only partly insane.

Benchmark’s purchase of a 26 per cent stake certainly looks pretty smart now. Harvey (whose earlier successes have included eBay) wouldn’t say how much he had invested, but MySQL took in around $39m in all.

It’s hard to shake off the lingering feeling, though, that open source as a pure-play strategy will never add up to much, and Sun’s purchase of MySQL seems to confirm this. Sure, it’s hugely disruptive to the software establishment, but it’s beginning to look like open source has more value when used as part of a traditional technology company’s armoury, rather than as a stand-alone business.

Sun hopes that owning MySQL will give it a chance to sell other (proprietary) software to users of the open source database. That is the same idea that prompted earlier open source acquisitions by Novell (of Linux distributor SuSe) and IBM (middleware company Gluecode.) Oracle didn’t even bother making an acquisition but simply declared that it would support Red Hat’s version of Linux, dealing a big blow to that company.

It seems only Red Hat really believes in trying to build a pure open source software "stack". At around $500m a year and growing at 30 per cent, Red Hat’s revenues are not to be sneezed at. But, tellingly, it is Sun, not Red Hat, that has bagged MySQL. Equally tellingly, MySQL’s investors discovered that the company was worth more as takeover-bait for Sun than as a stand alone business. "It was on the IPO track until Sun convinced us to take this track," says Harvey.

Maybe Sun has overpaid. But if Schwartz is right and MySQL is worth more dead than alive (as it were), then it suggests that the dominant software models will be hyrbid ones, not pure open source.

Hidden behind some billion-dollar database-company acquisitions - on what must be a record-breaking day for number of deals in the sector - came a little funding news that could eventually have equal significance for the way we organise our information online.

While Sun was paying $1bn for MySQL, Oracle was buying BEA Systems for $8.5bn and SAP was wrapping up its $7.15bn Business Objects acquisition, San Francisco-based Metaweb received $42.5m in second-round funding led by Goldman Sachs.

Metaweb says its aim is to build a better infrastructure for the web. Its first product is Freebase – “an open, shared database of the world’s information.”

Web sites have been able to provide more relevant and meaningful results for users’ searches in recent years, thanks to XML, which allows more detailed tagging and categorising of information.

Wikipedia is an example of information being organised by users themselves in an even more structured way and Freebase is extending this by drawing on Wikipedia and many other sources for its open database.

It differs from Wikipedia in listing facts and statistics rather than articles on subjects. This rawer format allows others to sort and repurpose the information into new forms on their own web sites. Freebase is also different from Google Base in eliminating any duplication of data and providing a community editing tool.

It is still early days, but Metaweb hopes to make money by serving ads next to the information that Freebase throws up - a model where Google has been rather successful and where Metaweb could become a threat – as well as by charging for some commercial uses of its APIs.

Classrooms were never going to be the first place you’d expect to find the latest versions of Windows and Office. Nevertheless, the short shrift given to Vista and Office 2007 by the British Educational Communications and Technology Association this week sounds particularly harsh:

From the agency’s summary of its 1-year study:

The new features of Microsoft’s Vista product added value but did not justify early deployment in the education sector. The deployment costs were seen as high and the benefits were far from clear.

Office 2007 contained no "must-have" features and Microsoft should develop an underpinning business case to justify deployment in the education sector.

There were interoperability concerns regarding Office 2007; and Microsoft should urgently provide "native" support for the Open Document Format (ODF.)

After its rejection last September, Microsoft will make another bid next month for international backing for its own new "open" document standard. This is a reminder of how much is at stake.

  The arrival of a former airline executive to run leading Linux distributor Red Hat looks like a sign of the times.

Matthew Szulik, who held the CEO job for nearly a decade, was a warrior of the software holy wars, a man with a strong philosophical belief in the importance of the GPL and a clear distate for proprietary software and the business tactics often used to entrench it.

By contrast, newcomer James Whitehurst comes across as a pragmatist (Szulik said just before Christmas that he was stepping down, but would remain chairman.)

When I spoke to Whitehurst on Thursday - his third day on the job - his defence of open source was on purely practical rather than philosophical grounds:

Fundamentally, it’s a better way to develop software. Would I describe myself as a zealot, and proprietary software as evil? No, definitely not.

That’s a big change. For good measure, he also struck a conciliatory tone when asked about arch-enemy Microsoft, saying that he would be willing to enter discussions with the software giant "if there’s any partner out there who wants to chat about things that would help customers."

Who knows if this signals a thaw ahead. But with Microsoft already cozying up to Novell and helping to sell support contracts for SuSe Linux, the software industry’s philosophical divide is starting to look much less pronounced.

Touch-typing took on a new meaning for me this year as I struggled to hit the right letters with my fingers on the touch-sensitive iPhone.

What was more satisfying was the multi-touch capabilities the iPhone introduced – expanding the size of a photo by the spreading of fingers, stroking through a music collection in Cover Flow mode.

Touch has been a major trend of 2007, from the iPod touch and iPhone and their imitators to Microsoft’s coffee-table Surface PC.

Balda, a German company, was a major beneficiary of the iPhone’s popularity, with its glass screen, whose software can detect several fingers at once, being adopted by Apple.

Synaptics, a Silicon Valley company, has also got in on the act – its touch technology is now in more than 25 phones.

“In devices which give you the maximum visual information and where there’s no room for keyboards, the touch screen becomes your user interface,” Francis Lee, Synaptics chief executive, told me.

Synaptics is better known for its touch pads that replace a mouse in notebook PCs. I rarely click anything on my notebook these days, using “tap zones” on the touch pads to replace a mouse left- or right-click and stroking the pad to scroll through pages or zoom in or out.

Global revenues for touch-screen technologies will nearly double from 2006 to 2012, rising from $2.4bn to $4.4bn, according to the iSuppli research firm.

It lists eight leading technologies – resistive, surface capacitive, projected capacitive, infrared, surface acoustic wave, optical, bending wave and active digitizer – and eight emerging ones - photo sensor in pixel, polymer waveguide, distributed light, strain gauge, multi-touch, dual-force touch, laser-point activated touch and 3D touch.

Resistive products are currently the cheapest and most common types of touch screen and revenues should increase at a compound annual growth rate of 3.1 per cent to 2012, says iSuppli. In contrast, multi-touch revenues, helped by the iPhone and expected adoption by handheld game consoles and map browsing systems, are expected to grow at a rate of 31 per cent.

Full marks to Larry Ellison (not to mention Credit Suisse and WR Hambrecht) for their management of the Netsuite IPO, but it seems that sometimes you just can’t plan for Wall Street’s apparent irrationality.

This had all the makings of one of those headline-grabbing IPOs that leaves a company’s early shareholders with an uncomfortable feeling that they have somehow been short-changed. The bankers come up with a price that is meant to give the stock a comfortable ride in the after-market, only to see trading go through the roof. Initial investors are left to wonder how much money was left on the table (this summer’s VMware IPO was the most glaring recent example.)

It seemed that the Dutch auction format used for the Netsuite IPO was going to iron out that effect. In recent days the indicated price range was raised twice, from an initial $13-16. The shares were eventually priced on Wednesday at $26 each. This is a company that is far smaller than Salesforce.com, which has grown far slower than Salesforce.com, and which has yet to prove its business model works - yet the pricing was at a significant premium to Salesforce.com on any measure you care to take.

It looked as though Ellison, CEO of Oracle and controlling shareholder of Netsuite, had called the IPO traders’ bluff. If they wanted to bid up the auction to a dizzy level to assure themselves of an allocation, he was not above hitting the bid and taking the money. When the shares opened on Thursday they settled just above the issue price, despite very heavy trading. Any premium had seemingly gone to the company and its early investors.

So how to account for what happened in the last two hours of trading? Netsuite’s shares eventually drifted all the way up to $35.50, to yield a significant first-day "pop." It seems that, with a shortage of shares in the IPO, there’s just no way to handle the weight of money looking for a home in the "software-as-a-service" sector (Salesforce was also up 8 per cent Thursday.) But when the lock-up ends and Netsuite insiders get to unload more of their shares it should be a different story.

Here’s food for thought. The average Infosys employee produces roughly the same amount of profit for his or her company in a year as the average worker at Accenture. And that’s in absolute terms, not relative: an engineer hacking out code in Bangalore is adding as much to the corporate bottom line as a consultant in Manhattan, at around $14,000-15,000 a year.

This was pointed out to me by Infosys chief financial officer V Balakrishnan, who stopped by while visiting San Francisco recently. It’s a sign of the considerable leverage in the business model of the Indian services companies (at around $50,000 a year, revenues per employee for Infosys are only 40 per cent those of Accenture, so the parity on profits looks impressive.)

There are two ways to look at this. One is that the Accentures and IBMs of the world have ample room to expand their margins. If it brings costs down closer to the level of their Indian rivals, the "global sourcing" both are pursuing should fuel profit growth for some time.

The other side of the coin is that price deflation could be about to turn scary for the Western IT services firms. The business model of the Indian firms - with healthy profits despite much lower prices - leaves them in a strong position to attack.

For now, the Western firms publicly brush off the threat: the Indian firms are stuck with lower-value work, and are not big enough to be a force in many parts of the IT services market. But that is changing fast (Infosys, for instance, plans to add 30,000 workers next year to the 80,000 it already has.) The Indian firms have also been recuiting consultants and other "front end" workers in the West to build deeper links with customers there.

It may still be the case that noone ever got fired for buying from IBM - but when it comes to future services deals, they might at least get to bargain harder over the price first.

It seems that BEA Systems can juggle numbers just as much as Oracle can (see note below.)

Announcing earnings on Thursday, CEO Alfred Chuang wanted Wall Street to overlook his gigantic stock option backdating charge (which virtually wiped out reported profits for the past decade) and focus instead on the software company’s rebounding profit margins. And not just any profit margins but pro forma figures which, among other things, excluded the costs of hiring all those lawyers and bankers to keep the barbarians (in the form of Larry Ellison and Carl Icahn) from the gates.

Shouldn’t expenses like these be seen as a normal cost of doing business, one analyst wondered?

It isn’t normal to come under fire from a hostile bidder and a shareholder activist at the same time, retorted BEA executive Bill Klein. "We don’t believe that both of these circumstances can continue for the long run." Is that reasoned analysis or wishful thinking?

Growing a company through acquisitions can feel a bit liking eating Chinese food. Two hours after you’ve had a meal you’re hungry again.

Larry Ellison must be starting to feel that way. When he bought PeopleSoft, he promised it would put Oracle on course for earnings per share growth of at least 20 per cent a year. He’s more than met that promise (that is, if you care to overlook the little matter of amortisation - more on that below.)

The trouble with strategies like this is, they only work if you keep buying. Prices have been going up and suitable big targets are getting scarcer - which explains why this has now become a preoccupation on Wall Street, to judge by the questions Ellison faced at his company’s annual financial analyst meeting on Wednesday.

Ellison’s message to the doubters: "We have found some very attractive targets, and we think we can do it for a while longer." Compared to the horizontal software plays he has bought so far, the next spate of deals might involve more "vertical" companies that specialise in specific industry sectors. "We can buy a typical vertical company that’s running at 5 per cent [operating margins] and run it at 30 or 40 per cent," Ellison boasted.

The trouble is, the bigger Oracle gets, the hungrier it becomes. According to Charles Di Bona at Sanford C Bernstein, Oracle will have to spend $52-58bn on acquisitions over the next five years to keep its earnings per share machine ticking over at the desired rate. So either the deals have to get bigger - in which case the risk of overpaying and the complexity of integration go up - or Oracle has to spread its net wide and trawl for large numbers of smaller transactions.

There’s no question that Ellison’s consolidation play has been a huge success. The outcome of his current circling of the beleagured BEA Systems should give some idea of how long he can keep it up.

Footnote: What is the right measure of earnings for a serial acquirer like this, anyway? Oracle likes to boast about its pro-forma earnings per share. But as the deals have flowed, the amortisation of intangibles has picked up: 12 per cent of operating profits in the 2006 fiscal year, rising to 15 per cent in 2007.

Look at it another way. Back in 2004, Oracle’s earnings per share looked roughly the same on both a GAAP and non-GAAP basis. In the three years since, the pro-forma number has jumped by 98 per cent: the GAAP number is only up 62 per cent. Like too much Chinese food, all those deals start to show on the waistline in the end.