Oracle StockOracle (nasdaq: ORCL) surged more than 11% to a new 52-week high on Wednesday backed by strong first quarter earnings and underscoring the strength of the company's decision to grow by acquisition.

Oracle spent about $20 billion to buy PeopleSoft in 2005 and Siebel Systems this year, solidifying its place in the market for corporate applications. via Forbes.

Oracle is interesting to me for several reasons.

Oracle is not only competing with lower cost products like Microsoft SQL Server, which has grown amazingly in the recent years from its Sybase codebase, but also with quality free products like MySQL or PostgreSQL. It shows how a product company can succeed even in the face of competition from open source free products.

Companies like Oracle also help develop industries around their products thereby further solidifying their position in the market. Being an Oracle DBA is a lucrative position, which is relatively easy to get into and easy to earn a lot. Oracle Financial Applications fosters a huge industry of small consulting & implementation companies. Oracle has been known to actively foster its developer community and help them grow. Even though Oracle do provide high end Professional Services, there is lots of room in middle to lower end of the spectrum.

Contrast this with open source companies like RedHat or MySQL or JBoss or WordPress. It is hard for them to foster implementation partners as they are themselves trying to float their business through consulting and support! The amount of business that can thrive around them is much less as they have to compete with the parent company, which isn't easy. Understand that this picture isn't black and white. Bigger ones like MySQL tries to foster some community, while smaller ones like WordPress think they are favoring their community by their venerable presence and don't care much about them.

Overall the size of the industry reduces drastically and spooks new entrant as they don't want to compete with zero-cost products, if they can help it.

The good news is that slowly companies are realizing that free to purchase doesn't necessarily translate to free to implement and maintain. Quality and support of a product counts much more than the upfront price. And so companies like Oracle are rising again in public perception, in profitability and hence in the stock market.