Oracle Jumping into Open-Source Market

Oct. 26–Oracle, a longtime giant of proprietary software, announced Wednesday a major new move to provide open-source software for big business. But to make that happen, it might steamroll right through leading Linux open-source vendor Red Hat on its way.

The business software giant from Redwood Shores will soon offer its own version of Red Hat’s Linux open-source operating system, Chief Executive Larry Ellison said in a keynote speech at the company’s Oracle OpenWorld conference Wednesday in San Francisco.

Oracle’s Unbreakable Linux will be almost exactly like the one currently sold by Red Hat, the largest commercial provider of the operating system. But Oracle will strip out the Red Hat trademarks and fix some software bugs. It will offer support services such as further bug repair and updates to the operating system — its own version and Red Hat’s — for about half of Red Hat’s retail price of services.

The addition of an operating system means Oracle will sell products throughout all of what’s called the software "stack" — from complex, underlying applications like databases to high-level customer relationship management software — that companies use to keep track of clients.

"For the total-solution sale, [Ellison]’s got almost everything he needs, from the application server all the way to the monitor glass. The remaining piece is an OS," said Bill Roth, vice president of the workshop business unit at San Jose software company BEA, an Oracle competitor.

However, in the open-source world, a part of the technology industry based on community and trust, the move was met with mixed reaction. After all, Oracle will be raking in millions in revenue by taking advantage of a decade of Red Hat’s work (and years more by independent Unix and Linux developers).

"[Talk] about the pirates of Silicon Valley — Oracle has just taken Red Hat’s revenue stream and gone off and done their own thing with it. That’s an amazing event," said Rob Enderle, principal analyst of the Enderle Group consultancy in San Jose. "This is a world-changer. It’s like you wake up one day and the Berlin Wall is falling and the USSR is gone."

Ellison doesn’t see anything wrong with the strategy.

"This is capitalism. We’re competing," Ellison said in a question-and-answer session after the speech. "We’re trying to offer a better product at a lower price."

Just before his keynote address, Ellison stood onstage with Nasdaq Stock Market President and Chief Executive Bob Greifeld for the market’s closing bell ceremony, celebrating Oracle’s 20th anniversary as a publicly traded company.

Open-source programs use publicly available software code contributed by programmers from around the world. Red Hat and other vendors typically offer the software at little cost and charge annual support fees.

For weeks, rumors that Oracle was developing its own version of Linux had been circulating throughout the industry, driving down Red Hat’s stock. Red Hat shares closed up 10 cents at the end of Wednesday’s market trading, but in after-hours trading it dipped 16 percent to $16.25.

A similar scenario could strike any open source software vendor, because stripping Red Hat’s trademarks and shipping what’s left is "legal and doable," said Brett Adam, vice president of product development at rPath, a Linux software start-up founded by two former Red Hat executives in Raleigh, N.C. "That’s the reality of open source. The Red Hat support agreement restricts customers of their support services on various ways, but it can’t restrict the code."

Despite the competitive threat, Red Hat, a longtime Oracle partner, took the move in stride.

"We feel great Mr. Ellison has acknowledged Linux as a strategic direction for Oracle," said Matthew Szulik, Red Hat chairman, chief executive and president. "If you look at the cup being half full, [Oracle] just expanded our marketplace by declaring Red Hat the enterprise Linux standard."

Oracle has been offering some support, including patches of software bugs, for Linux since 2000, and has built up a staff of more than 100 engineers with Linux expertise.

Mercury News Staff Writer Therese Poletti and Bloomberg News contributed to this report.