Red Hat to up the virtualization price war ante

Red Hat plans to squeeze VMware on pricing as it bundles virtualization technology with its operating system.

That's the biggest takeaway from Scott Crenshaw, General Manager, Red Hat Enterprise Linux. Crenshaw spoke about virtualization on a conference call Tuesday afternoon with Prudential Equities.

Red Hat En

terprise Linux 5, which had its second beta in November, will include technology to roll out virtualization throughout a company. Virtualization is a way to run more than one application on one server. The success of VMware, which is planning an IPO, has attracted a host of rivals such as Virtual Iron and Xensource looking to gain share through lower prices. As that competition heats up a price war is likely to ensue. It's unclear how VMware will have to respond, but for now the company is segmenting its offerings for various markets such as small business.

While smaller rivals have yet to dent VMware, Red Hat could be a viable threat over time. VMware and Red Hat are good partners that will engage in coopetition, says Crenshaw. But it's no secret that Red Hat sees virtualization as a key market. Crenshaw said:

"For virtualization as it’s used today the dominant player is VMware. But because of their pricing model the use of virtualization is limited by the business case. At current price points, there are a small number of use cases that make sense. We're integrating into the operating system at prices that will be quite aggressive. Our approach with virtualization is that the benefits of integrating with the OS are substantial and we can offer pricing models that are economically better relative to VMware."

Crenshaw argues that with current VMware software a customer buys software from VMware and then has to buy more operating system licenses for each instance virtualized. By combining the operating system--in this case Red Hat--with virtualization technology those additional licenses aren't necessary.

Red Hat will also aim to simplify pricing with virtualization. "We will have everything you need to virtualize your environment into one SKU. It will be much more economical than buying separate components," says Crenshaw.

Red Hat's target is pretty clear. For instance, VMware Infrastructure 3 comes in three editions--starter, standard and enterprise--with prices ranging from $1,000 per two processors to $5,750. Support and upgrade subscriptions boost those totals.

What isn't clear is what Red Hat's prices will be. Crenshaw said to expect a pricing announcement in a "matter of weeks." "It's imminent," he added.

So what's the end game? According to Crenshaw in "3 to 5 years companies will standardize on one virtualization platform and run all of their applications on top of that." No wonder VMware is raising funds to grow faster.