Red Hat won't cut support prices because of Oracle move

Other vendors' reactions range from welcoming to unprintable

Red Hat Inc. won't cut its prices for Linux support contracts to businesses, despite plans by Oracle Corp. to offer similar services at a steep discount.

Red Hat CEO Matthew Szulik made the comments today to cable channel CNBC, one day after Red Hat's stock plunged following Oracle's announced plans to offer support for Red Hat Enterprise Linux (RHEL) and offer an Oracle-branded "clone" of RHEL.

At Oracle's annual confab, OpenWorld, on Wednesday, CEO Larry Ellison said his company's plan -- an extension of Oracle's five-year-old "Unbreakable Linux" program -- will deliver support at prices half of what Red Hat now charges. Prices start at $99 per system per year for bug fixing and patches and rise to $1,199 for premium support, which includes indemnification.

Red Hat's stock fell 24% to $14.83 yesterday, erasing nearly $1 billion from the company's market value.

In a response emblazoned "Unfakeable Linux" and posted on its Web site, the Raleigh, N.C., Linux distributor raised doubts about the value and compatibility of Oracle's offering to customers. That view was in contrast to enthusiasm from the head of the largest Oracle user organization.

"The IOUG is extremely excited by Oracle's announcement for enterprise-class support for Linux," Ari Kaplan, president of the Chicago-based Independent Oracle Users Group, said in a statement today. "This Oracle support for Linux encompasses the complete best-of-breed technology stack from the operating system to the database, Fusion Middleware, application server and applications."

According to the IOUG, about half of its members run their databases on Linux.

Reaction from vendors that already provide support for Red Hat, many of whom also heavily do business with Oracle, was muted.

IBM "thinks Oracle's move is a validation of the space," according to a spokesman. IBM has supported customers running Red Hat and Novell Inc.'s SUSE Linux for five years, he said, with more than 7,000 full- and part-time Linux consultants.

IBM said it will continue to work with Red Hat on providing patches to RHEL. Moreover, it will continue to price its support offerings "similar to Red Hat to avoid channel conflict, because we want customers to feel comfortable buying support from either one of us," he said.

Hewlett-Packard Co., another leading provider of Linux support, said it "supports Oracle's plans" and is "pursuing a number of options with Oracle to ensure our ability to extend the benefits of the offering to customers," according to an e-mailed response from an HP spokeswoman.

"We believe Oracle's announcement will accelerate open-source adoption," said Kim Polese, CEO of SpikeSource Inc., an open-source support provider to businesses. "The commoditization of infrastructure software has been expected and is a natural outcome as open-source software penetrates the market."

More direct rivals of Oracle were less enthusiastic. "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," charged Dave Dargo, chief technology officer at open-source database start-up Ingres Corp. In a blog entry titled "Bull*&#%!," Dargo questioned Oracle's math, pointing out that any savings from switching from Red Hat to Oracle support for Linux pale in comparison to the license fee for the Oracle database presumed to be running on top.

And "if Oracle is tremendously successful in taking Red Hat's business then, ultimately, Red Hat won't be around," Dargo wrote. "Is this their plan, to get Red Hat's valuation low enough to acquire them?"

Billy Marshall, CEO of Linux appliance vendor rPath Inc. and a former executive at Red Hat, said there are "many unanswered technical questions" regarding Oracle's support program. "Oracle claims they are going to follow the Red Hat maintenance stream, but they also claim they are going to issue patches to customers independent of Red Hat," he wrote in his blog. "When Oracle patches a system for a customer, and Red Hat subsequently provides a patch that conflicts with the Oracle approach, how will the conflict be resolved?"

Winston Damarillo, CEO of open-source vendor Simula Labs Inc., called Oracle's announcement "a pretty disruptive move" that exposed the inherent vulnerability of the dual-licensing model used by Red Hat and many other open-source companies such as Novell and database vendor, MySQL AB.

That model, popularized by the General Public License (GPL), involves vendors offering their products in full for free in the hopes of enticing users, mostly businesses, to sign up for support and maintenance contracts. Damarillo, founder of Gluecode Software Inc., an open-source application server maker that was sold to IBM in 2005 and now competes with application servers from both Red Hat and Oracle, said that makes it easy for competitors such as Oracle to invade their turf.

"With GPL, all of your IP [intellectual property] is taken away," Damarillo said. He believes that Oracle's move will encourage many open-source vendors to move to a dual-distribution model, in which they offer a free core software product and charge for support as well as proprietary add-ons like developer tools or extra security.

Reuters contributed to this report.

Copyright © 2006 IDG Communications, Inc.

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