Red Hat Inc. lost close to a quarter of its market capitalisation last week after Oracle Corp. declared its intentions of lending technical support to Red Hat solutions for half the price offered by the company.
Oracle will offer bug fixes, maintenance and support with steep discounts to enterprises that use Red Hat Linux. Red Hat stands to lose marketshare as its business model relies heavily on support. Red Hat and Novell Inc. provide standardised versions of Linux and sell maintenance, upgrades and technical support services for their Linux distributions.
Analysts had expected Oracle to enter the Linux market using the Open Source code but the company’s move has made a bigger splash than anticipated.
The discounts offered by Oracle may run a-foul of US anti-trust laws if they are deemed predatory. However, such cases are difficult to bring to closure as US courts typically view price cutting as facilitating competition. The courts would view a price cut as predatory only if it were proved that the move made no business sense except to drive a rival firm out of business.
Red Hat Inc. has decided not to cut its prices for Linux support contracts for enterprises. Watch this space.
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