"As of this moment, Oracle is announcing full support for Red Hat Linux," Chief Executive Larry Ellison told thousands of attendees at thehere on Wednesday. "If you are a Red Hat support customer, you can very easily switch from Red Hat support to Oracle support."
Becoming an operating-system company is one of a series of bold attempts at growth by the Redwood Shores, Calif.-based software company, which in recent years also has acquired small and large rivals. Many major computing companies have embraced Linux, but until now, all have chosen partnerships with Linux companies rather than direct competition.
Ellison argued that customers of Unbreakable Linux 2.0 will enjoy lower costs, better bug fixes and better legal protections than with Red Hat. Software updates cost $99 per server, while technical support costs $399 for a two-processor server and $999 per year for a larger system, Ellison said. And unlike Red Hat, Oracle will let anyone download the software for free.
"We will backport your bug fixes" to earlier Linux versions, he said. "We will indemnify you from intellectual property problems. And our support costs way less than half of what Red Hat charges," Ellison said.
Red Hat trimmed?
In after-hours trading, Red Hat's stock plunged 16 percent, or $3.16, to $19.51, but CEO Matthew Szulik was unfazed by Oracle's move. He said the Linux seller isn't re-evaluating its pricing, its relationship with Oracle, its plans to expand its open-source products higher up the software "stack," or its relationship with Oracle rivals.
Over the last four quarters, 99 out of 100 enterprise accounts that were up for renewal did renew, and greater than 40 percent expanded their Red Hat Enterprise Linux penetration. "Clearly, we must be doing something right," Szulik said of the company's support subscriptions. Of the lower stock price, he said, "Sounds like a buy."
But because Oracle is Red Hat's largest software partner, its Linux move could seriously encroach on Red Hat's customer base, said Jefferies & Co. analyst Katherine Egbert. "They're very influential in selling. We don't know how Red Hat is going to respond yet, but given this, why would you go to Red Hat?"
Outside Oracle's customer base, the effect on Red Hat likely will be limited, predicted Raven Zachary, an analyst with the 451 Group. "I don't see non-Oracle database or applications customers selecting Oracle as its Linux provider any time soon," he said.
Oracle, like theproject, wants to clone Red Hat's Linux based on the source code produced by the company, not create a new Linux variant. And Ellison promised that software certified for Red Hat's Linux will still work.
"If your application runs on Red Hat today, that application will run unchanged when you're getting Oracle support," Ellison said. "It's very important not to fragment the Linux market. Every time Red Hat comes out with a new version, we're going to sync our version with that version. All we add is bug fixes."
Oracle will sell support to any Red Hat Linux customer, not just customers of Oracle products, Ellison said. Ellison has , and recently, rumors have swirled that Oracle OpenWorld would be the forum for an official announcement.
Oracle can try to use open-source software to gain competitive advantage, but the open-source movement is also providing the company with lots of competition. Most directly are databases such as MySQL and PostgreSQL, but also on the list are Java application servers and software for managing customer relationships and corporate inventory and accounting.
Oracle is watching the open-source moves closely, including Red Hat's acquisition of JBoss. Wednesday's Oracle move was a pre-emptive move to impede further Red Hat moves up the software stack, said Rick Sherlund, a Goldman Sachs analyst.
Oracle's influence is broad, and the company wooed several Red Hat allies into its camp. Videotaped endorsements came from Dell Chairman Michael Dell, Hewlett-Packard CEO Mark Hurd, Intel Chief Executive Paul Otellini, Advanced Micro Devices CEO Hector Ruiz, EMC Chief Executive Joe Tucci and Network Appliance CEO Dan Warmenhoven. Bill Zeitler, head of IBM's server group, also endorsed Oracle's move in a separate statement.
"Dell customers can choose Unbreakable Linux 2.0 running on Dell PowerEdge servers," Dell said, adding that Dell is itself a customer. And Hurd said, "We're excited about supporting the Unbreakable Linux platform for mutual customers."
Yahoo, a major user of Linux on its 150,000 servers, uses Oracle's Linux support, said Laurie Mann, the Web company's vice president of engineering.Less than half Red Hat's price
Ellison repeatedly complained that current Linux companies often fix bugs in new versions but not current products in use, adding that Oracle will provide such support. However, that level of service--along with indemnification and lifetime support--costs a significant notch more: $1,199 for a two-processor server and $1,999 for a larger system. In addition, current Oracle customers can try the Oracle Linux service free for 90 days, and all customer can get the service for half price through Jan. 31.
Red Hat's support price, including the round-the-clock support Oracle offers in all its plans, is $2,499 per year for larger servers. For servers with up to two processors, Red Hat offers support for only 12 hours a day, five days a week, which costs $799 per year.
Oracle believes Red Hat will find itself in a difficult position should it try to throw roadblocks in Oracle's way when accessing Red Hat's Linux.
"We don't see what barriers they can erect without hurting their users," said Edward Screven, Oracle's chief corporate architect.
He said that Oracle certifies its software with Red Hat and that it has "every intention" to continue doing so. As a result, customers who don't move to Oracle's Linux won't be left out, he said.
Oracle's move isn't likely to change the Linux market overnight, though it will pressure Red Hat's prices, said RedMonk analyst Stephen O'Grady. "I think mainstream Linux customers will play a wait-and-see game. Platform decisions are not made quickly or easily," he said. "Red Hat customers are likely to benefit here, as Oracle Linux will act as a check on Red Hat pricing."
But paradoxically, the move could bolster the dominant position of Red Hat--or at least of its software.
"I suspect that in the short term, this will be a problem in terms of perception and customer apprehension," O'Grady said. "In the longer term, this could actually reinforce Red Hat's preeminence."