Open source software is driving "a number of interesting deals," according to analyst company The 451 Group in its Q1 2006 look at mergers and acquisitions in the technology industry. The firm, based in New York with offices in Boston, San Francisco, and London, said that M&A activity rose 67 percent overall comparable to Q1 2005, with the telco sector accounting for more than three quarters of all activity.

Yet open source stood out as well, with deals by Cisco, Oracle, Yahoo, and Google drawing the most attention. The report also outlined some so-called "cradle robbing" by Yahoo and Google, which made deals of very young companies such as Flickr.

The 451 Group's report includes the enormous, $67 billion purchase SBC/AT&T's BellSouth purchase.

But back on planet Earth, it also pointed to Oracle's acquisition of SleepyCat (which 451 valued at $60 million).

The report specifically mentions open source as a hot sector, but it should lead to a discussion about the state of software consolidation in the industry as a whole. Oracle Chairman/CEO Larry Ellison famously predicted that Silicon Valley could become "the next Detroit" in an interview a couple of years ago, noting that an age of software consolidation was inevitable.

All major platform vendors (software and hardware) are proclaiming their commitment to open source in the current era, and many have acquired open source companies as part of this stated commitment. But there have been several proprietary deals as well, which should warm the hearts of software entrepreneurs everywhere, whether or not they are fully committed to an open-source approach.

As an example, Oracle also acquired Innobase (which theoretically puts pressure on open source stalwart MySql), as well as a number of smaller, targeted proprietary software companies such as HotSip, ProftiLogic, 360 Commerce, Times Ten, Oblix, and Context Media. As the database giant continues to integrate major acquisitions PeopleSoft and Siebel Systems into its enterprise IT database and middleware strategies, it is clear that open source vendors with targeted missions will remain attractive.

Yahoo did its part in open source, acquiring Flickr, Konfabulator, and del.icio.us, as it drives to become a major media company as well as overall Web standard. And rival Google did its part for open source and other small companies with its Writely, @Last, SketchUp, and zipdash acquisitions over the past 18 months.

Meanwhile, CA shelled out $375 million for J2EE-based company Wily Technology. And Cisco seems to have returned to its Bubble 1.0 days as a serial acquirer of niche technology companies.

The 451 report, for its part, notes that large companies such as Yahoo and Google seem to be acquiring smaller companies because they can dramatically increase a small company's contribution to revenues and profits by leveraging them against their very large traffic flows and customer databases. They may also be driven by a fear of disruption that can be caused by new, small companies that offer free products, thereby potentially usurping large companies' revenue streams.