Recurring Revenue Authors: Liz McMillan, Yeshim Deniz, Elizabeth White, Xenia von Wedel, Carmen Gonzalez

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Recurring Revenue: Article

Oracle Executes "Ruthless and Brilliant Act of Capitalism"

Price War in the World of Enterprise Open Source

In a move that caused the stock price of Red Hat Inc. to sink in early trading Thursday, Oracle has declared its intention to sell low-cost support services for Red Hat's Linux distro, undercutting RH on price and thereby potentially disrupting its entire business model.

Larry Elllison (pictured) has always pioneered tactics such as boldness and suprise, and has always been highly active in the Linux world, but this is truly his boldest move yet. Reuters is reporting that Credit Suisse already reduced its product billings assumptions for Red Hat Inc. by about 15% for the remainder of fiscal 2007 and all of fiscal 2008, given the negative implications of the announcement.

Business Week called Ellison's move "a ruthless and brilliant act of capitalism."

In a prediction with which it is difficult to quarrel, former Oracle staffer Dave Dargo (now with Ingres) has blogged:

"Essentially, Oracle is taking the work that Red Hat is doing and charging less for it in an attempt to bypass Red Hat as a vendor.

I’m not sure how long that model, if successful, can last. If Oracle is tremendously successful in taking Red Hat’s business then, ultimately, Red Hat won’t be around. Oracle will then either need to acquire Red Hat or staff up to include the same resources that Red Hat has in building, distributing and supporting their product. Is this their plan, to get Red Hat’s valuation low enough to acquire them?"

Ellison said, in announcing the move, "We believe that better support and lower support prices will speed the adoption of Linux, and we are working closely with our partners to make that happen.” Skeptics are reminding the world that Oracle charges nearly $200,000 for its database. Plus, as Dave Dargo puts it, "I’m mostly curious as to why Oracle’s first real support network is for someone else’s product."

Dargo then takes it one stage further:

"Where’s the Oracle Database Network and Applications Network and PeopleSoft Network and Siebel Network? Where are the support infrastructure networks for Oracle’s own products to automatically distribute fixes, patches and alerts? It’s amazing that they can provide all that for a mere $399 for a competitor’s products, but not for their own $200,000 product.

At the end of the day they still haven’t answered the basic question of how eliminating choice benefits the customer, and that’s bull*&#%."

Enterprise Open Source Magazine will naturally keep you posted on what other commentators are saying in due course.

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Oracle News Desk trawls the world's news information sources and brings you timely updates on Oracle and its ever-expanding enterprise software portfolio, including its entire range of tools for managing business data, supporting business operations, and facilitating collaboration and application development.

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Most Recent Comments
Macka 10/26/06 11:22:40 AM EDT

This announcement puts Redhat in a very weak position. And if Oracle gain significant mind share with this, they could just as easily switch to something like Ubuntu Server sometime in the future and further marginalize Redhat.

an0n 10/26/06 11:21:32 AM EDT

Finally! Now you too can own a $30,000 version of Linux.

* In keeping with the Oracle tradition of no GUIs, no KDE and GNOME will not be included. Larry has his fingers crossed someone else will write one.

* In the Oracle tradition of installers written in Java, you too can have a relaxed day of installation watching those damned applet windows keep redrawing themselves... very slowly.

Thusjanthan Kubendranathan 10/26/06 11:19:50 AM EDT

My take on this is that Oracle is trying to reach out to every possible thing that it can devour. Last I heard that it was looking at Business Objects as its next victim. However, on the bright side, I think this will give some headlines to the Linux distro as more and more companies will start using linux as their main OS as appose to Windows.

Would be perhaps a step in the direction of taking down the Microsoft giant. I see this to be a positive news (remember: look on the bright side of things :))

Tim Riordan 10/26/06 11:16:52 AM EDT

I might, *might* consider oracle for OS support on my database servers but the support would have to be much better than their DB support for me to consider non oracle machines..

Eek! 10/26/06 11:11:17 AM EDT

RedHat is going to be forced to drastically reduce their prices just to compete.

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