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Stephen Shankland

Staff Writer, CNET

SAN FRANCISCO–Red Hat needs to lower its prices, or risk losing customers to free versions of the open-source operating system, the Dell executive who oversees the partnership with the Linux seller said Tuesday.

“We believe Red Hat Enterprise Linux 3, for the small and medium-sized business market, was out of the price range of these customers,” said Judy Chavis, director of business development for Dell’s enterprise product group.

And Dell has the marketing muscle to make its opinions clear. Indeed, Red Hat’s pricing was instrumental in Dell’s decision to sign its October pact to sell Novell’s SuSE Linux. “It was definitely a factor in us working with Novell,” Chavis said in an interview here at Oracle’s OpenWorld conference. “Novell was able to step in and offer us that price point.”

Red Hat declined to comment for this report except to say that Dell is a strategic partner.

High prices come with consequences, especially in a market where free alternatives are available for those who don’t want as much support, software updates and certification as Red Hat offers. “We are working very closely with Red Hat especially to really be conscious about the fact that if we’re not careful, we’re going to lose these customers to other open-source projects,” said Chavis, mentioning noncommercial alternatives such as the Debian effort.

Sun Microsystems, Microsoft, IBM and Novell showed the same attitude as Red Hat when their technology became popular. “You get overconfident. You believe you’re the only game in town,” Chavis said. “But you always have to be watching for the second in line.”

The opinion puts Dell in the same camp as rival Sun, which is aiming its forthcoming Solaris 10 operating system squarely at Red Hat. Sun will offer Solaris 10 for free and will make the Unix version open-source software.

Sun in particular is working hard on a version of Solaris for x86 servers–those that use processors such as Intel’s Xeon or Advanced Micro Devices’ Opteron. “We do have some customers running it on Dell servers,” Chavis said of the x86 version of Solaris, but Dell has no partnership with Sun for the software.

“They’ve got to get to the point where Microsoft and industry-standard operating systems are today, then we’ll talk. But they don’t have the volume or the customer demand for it,” Chavis said.