Balderton

The ‘IKEA Of DATABASES’ Finds a Dublin Home

JAN 22, 2007

9 February 2007

MySQL distributes free software and still earns €40 million annually. Chief executive Marten Mickos hopes its latest offering will give Oracle a fright, writes Brian Skelly.

Marten Mickos is sitting in eerily deserted offices in East Point Business Park in Dublin. Deserted because it is a Saturday afternoon, deserted too because the offices are brand new and the computers, telephones and other office paraphernalia have yet to arrive.

He is fresh-looking, relaxed and good-humoured, despite having just flown in from Nuremberg, Germany, where he was addressing a developer conference, and facing the prospect of a flight to London the next day.

As the Finnish boss of a Silicon-Valley-based Swedish software company, MySQL, Mickos is well used to travelling and calling every country home, if only for a day. In this sense, he is the epitome of the modern IT executive and the company he runs reflects this same global character.

"Our organisation is completely global and distributed. There are 330 people in the company and 70 per cent work from home and in more than 200 locations," explains the Helsinki University of Technology engineering graduate, who has been at the helm since 2001.

Like many a technology multinational before it, MySQL has chosen Dublin as its European sales hub. Since the company doesn't generally "do" offices on any scale, the opening of the Irish operation is quite a big deal.

Although it will employ relatively few staff - just 20 to begin with - the site will be third largest in the MySQL world after its Cupertino, California, global headquarters and its home city of Uppsala, north of Stockholm (otherwise famous for being the birthplace of Skype, the internet telephony company now owned by eBay).

Explaining why Dublin was chosen over rival locations, Mickos says the decision was not taken on a whim but well researched.

"It wasn't about corporate tax rate but the fact that, with all the changes that Ireland has gone through in the last few years, you find all languages here. The other reason was that a lot of new businesses here are technology businesses so the people you hire have a natural tendency to know software or have worked with software companies."

What the European sales operation in Dublin will be selling is a hugely popular open-source database bearing the same name as the company.

Unlike Yahoo!, eBay or Google, MySQL may not be a household name and, with global revenues sitting at around the 40 million mark, it's not in the same financial league as these heavy-hitters of the internet. But its influence within the internet industry far outweighs its modest size.

Having been established in 1995, early users of its database software included Yahoo! and MP3.com and its reputation grew from there. The company now claims to have 10 million installations of MySQL, mainly in the US and Europe, and 44 per cent of web developers using it. In fact, MySQL is now the second largest open source company in the world (after Linux developer Red Hat) and has been the world's fastest growing database company for the past five years.

In Ireland, it has a number of customers mainly in the telecom, media and technology sectors including Eircom, ESB and Vodafone.

As an IT phenomenon, open source has been on the fringes of corporate acceptability for a number of years without ever quite getting there. Unlike closed source software houses which regard their source code as their crown jewels and charge customers for the privilege of using it, open source firms give the software away for free. MySQL distributes MySQL Server as free software under the GNU general public licence (GPL).

So how does the company make any money? By selling support and maintenance contracts or subscriptions to those who want them, albeit with a relatively modest price tag. Its latest offering, which Mickos hopes will "give Oracle a fright", is MySQL Enterprise Unlimited which bundles database software (unlimited company-wide use) with a 24-hour support contract and other services such as live server monitoring for just $40,000 (€30,000) a year - a fraction of what commercial databases such as IBM DB2, Microsoft SQL Server, Oracle and Sybase would cost.

Mickos feels passionately that it's about time customers stopped paying through the nose for software: "The software industry went crazy in the Eighties so the world has overpaid for crappy software for over 20 years."

The other way MySQL generates revenue is by licensing its proprietary code to independent software vendors (ISVs), which use MySQL as a component of their own software systems without disclosing the codebase of the resultant product. Since they don't sign up to the fundamental open source principle of two-way code-sharing ("Show me yours and I'll show you mine"), they don't get to use MySQL for free. These ISVs include some big names such as Business Objects, Cisco, HP and Nokia.

MySQL's long-term strategy is based on the premise that, although it gives away its software for free, over time a percentage of its customers will decide to pay for the services sitting on top. At the moment, only one in 1,000 customers (.001 per cent) actually does so; the rest pay nothing.

It seems a pathetic customer conversion rate but Mickos retains complete faith in his business model.

"Many will never turn into paying customers but we don't mind because even if they don't pay, they'll help us one way or another. They'll act as evangelists, they'll fix problems in the product, they'll report problems with it and so on. But then of course we need a sufficient number of paying users because you need money to make a company go round.

"Our conversion rate stands at one in 1,000 users but the interesting question to ask is, what will this ratio be in five years' time? The rate is improving all the time as we get more and more paying customers, as we get into more and more mission critical applications, as we march into the corporate world where they are increasingly using us.

"If the ratio ever reached 1 in 100 customers, this would be an enormous business with billion-dollar revenues."

Over the years, there has been fierce debate sometimes verging on downright hostility between the open and closed source camps, with each arguing the merits of their own position and explaining why it will triumph in the long run.

Closed-source firms are accused of being profiteering peddlers of inferior products while open-source advocates are often characterised as sandal-clad hippies looking to undermine the software industry.

Mickos might be in the latter camp - open source, that is, rather than sandal clad - but he is no ideologue. He looks and talks like the software chief executive he is, not some back-room geek with a grudge against Bill Gates and his ilk. And his argument in favour of open source comes down to simple economics, not a utopian vision of a world full of free software: open source is simply a superior way of producing software and over time superiority will win out.

MySQL is a privately held company whose investors include Benchmark, Index Ventures, Intel Capital, SAP Ventures and Red Hat, but it may not stay private for too long. A stock market flotation is rumoured. While Mickos doesn't deny this is a strong possibility, he won't elaborate on the when or where.

MySQL won't be the first open source company to go public: Red Hat famously achieved a valuation of $4.5 billion (€3.4 billion) following its IPO in 2000. Times have changed and the hot air that has vented out of the tech IPO market means a repeat is not on the cards. But there will doubtless be many an investor who will fancy a punt on the Swedish company whose technology is powering internet companies worldwide and whose performance to date proves that open source can be a successful commercial model.

For Mickos's part, he just wants the company to keep growing and for MySQL to continue to be the database for those who thought they couldn't afford one. It is not for nothing that the company sees itself as the "Ikea of databases". "Like Ikea, we have product with a simple but powerful design and we sell it at reasonable prices to a massive market," he explains.

Critics might say there couldn't possibly be a second Swedish company as successful and dominant as Ikea. Mickos is out to prove them all wrong.

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