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Microsoft move may spark database price war

The company outlines plans for SQL Server, including a new lower-cost workgroup version aimed at open source and other competitors.

Microsoft introduced a lower cost version of its database software on Wednesday, a move that could lead to further price cuts in the database market.

The company plans to introduce SQL Server 2000 Workgroup, a version for small businesses priced at $3,899 per processor, in the first half of this year. It will also add several features to the upcoming SQL Server 2005 update, which is due in the summer, and extend a reselling relationship with Dell, which will allow its customers to get support from the PC maker.

With the revamped product suite, Microsoft intends to offer alternatives to a range of rival software, including open-source products and databases from heavyweights Oracle and IBM.

"We want to make sure that we continue to beat the competition, no matter where they are," said Tom Rizzo, director of product management in Microsoft's SQL Server unit. "We believe the packaging and licensing is a feature of the product."

Microsoft, Oracle and IBM are the top three database suppliers. Combined, they garner the majority of money spent on relational databases, according to market research. Last year, Oracle and IBM each introduced lower-cost editions of their database in an effort to spur sales to medium-size customers, where Microsoft sells strongly.

The past year has also seen a rise in interest in open-source databases, although spending on such products makes up only a fraction of the multibillion-dollar database market. The open-source software is generally available for free; corporate customers typically pay a provider for support services.

The rise of open source in an already extremely competitive field points to growing price pressure in the database market, said Noel Yuhanna, an analyst at Forrester Research.

"We are predicting there will be a price war," Yuhanna said. "Suddenly, we're seeing most of the traction in entry-level databases (among established providers), to compete against open source."

Microsoft's strategy of transferring advanced features to cheaper products and having a range of pricing options reflects those market dynamics, he said.

The introduction of the Workgroup edition, which will be available for SQL Server 2000 and for SQL Server 2005, is meant to offer a better alternative to price-sensitive customers, particularly smaller organizations, Rizzo said. The Workgroup software is limited to machines with two processors (dual-core chips are counted as a single CPU) and 3 gigabytes of RAM.

Workgroup comes with a management tool, called Management Studio, which can be used with any SQL Server 2000 or SQL Server 2005 database. It also has some failover capabilities, which allow a back-up database server to start up in the case of a failure.

As for the other versions in the SQL Server 2005 update, the Standard edition will have built-in reporting tools and no limitations on memory. It will cost $5,999 per processor. The Enterprise edition, priced at $24,999 per processor and designed for demanding applications, will have a new set of tools for transferring data into large analysis databases.

Having features common to the four editions of SQL Server--Express, Workgroup, Standard and Enterprise--should make it simpler for a customer to build a database application relatively cheaply and to add more robust database features as use of the application grows, Rizzo said.

Microsoft had previously planned to ship SQL Server 2005 in the second half of last year. It had to push back the delivery date of the update and an accompanying Visual Studio 2005 development tool to this summer. The company plans to initiate a third beta, or testing, program for the overhauled database by the end of March. The beta will be open to all.

Rizzo said that the lower-priced product and features were driven by customer requests rather than as a reaction to competitors. Customers and partners were seeking a database that was more functional than its free product but less expensive that the standard edition of SQL Server. Microsoft also sought to make high-end features more broadly available. But, he said that Microsoft is comfortable competing on the overall value of its database.

"We welcome the competition, but we think in the end it's a losing proposition for (Oracle) to try to compete on price with us," he said. "They're niched at the high end, and they make all their money on these expensive add-ons."

An Oracle representative was not immediately available for comment. IBM declined to comment for this story.

Forrester's Yuhanna said that for large customers, traditional database features such as fast performance and reliability continue to be very important. But for applications at smaller companies, price is central to many customers' decisions.

"The fact is there's a lot of discussion about return on investments for databases. Customers are concerned about how they can get the best value for the lowest cost," Yuhanna said.