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Ellison posed a challenge to Linux software leader Red Hat Inc. late Wednesday by announcing that Oracle would begin offering maintenance services for Red Hat products -- and charge less for that than Red Hat does. Red Hat shares were crushed by the news.

Redwood Shores-based Oracle expects to offer discounts of at least 50 percent. The threat wiped out more than one-quarter of Red Hat's market value -- nearly $1 billion -- amid Thursday's deepening investor worries about the much smaller company's ability to withstand the challenge.

The assault on Red Hat continues Ellison's aggressive efforts to build upon the market clout that Oracle already amassed as the world's second-largest software vendor behind Microsoft Corp.

Oracle has spent about $20 billion snapping up other business software makers during the past two years, sometimes refusing to take no for an answer. In the biggest deal of the lot, Oracle launched a hostile bid for PeopleSoft Inc. that took 18 months to complete.

If Red Hat's stock continues to falter, the company could become increasingly vulnerable to a takeover. Oracle executives refused Wednesday to say if they might be interested in buying Red Hat.

"I don't think this will kill Red Hat," Ellison said Wednesday in response to a question from a packed audience attending the biggest convention in Oracle's 29-year history. "This is capitalism. We are competing."

Global Equities Research analyst Trip Chowdhry believes Red Hat might turn into a prime takeover target, but predicted IBM Corp. is more likely to be the buyer than Oracle.

Investors are convinced Oracle's attack will hurt Raleigh, N.C.-based Red Hat.

The company's stock plunged $5.05, or 25.9 percent, to $14.46 during Thursday morning trading on the Nasdaq Stock Market, where Oracle's shares fell 6 cents to $18.56.

Red Hat Chairman Matthew Szulik downplayed the threat to his company, hailing Oracle's move as a positive development for Linux -- an alternative to the dominant Windows operating system that fuels Microsoft's profits.

"There are always concerns, but keep in mind that Oracle ... acknowledged that Red Hat is the technical leader in the market," Szulik said. "We still have a rich product pipeline. We will compete."

Chowdhry thinks Wall Street's concerns about Red Hat are justified. He predicted Oracle's move will trim Red Hat's revenue by about $40 million to $50 million annually. Red Hat's revenue in its last fiscal year totaled $278 million -- a fraction of Oracle's $14.4 billion in revenue.

"Oracle has outsmarted Red Hat," Chowdhry said.

Oracle's challenge comes just a few months after Red Hat trumped Oracle by buying open-source software maker JBoss Inc. for $350 million.

Red Hat's handling of the JBoss deal was just one of several factors that irritated Oracle, Chowdhry said. He believes Red Hat made a crucial mistake by bragging that its Linux products would turn software into a commodity, prompting Ellison to attempt to counterattack.

Ellison said he is more interested in accelerating the open-source movement than crushing Red Hat.

Because much of Oracle's propriety software is designed to run on the Linux operating system, Ellison believes the company will make more money if more major corporate customers embrace open-source software.

Oracle's push into Red Hat's market won't affect financial results for at least the next few quarters, Chief Financial Officer Safra Catz told analysts during a Thursday meeting.

But Ellison's cutthroat tactics could position Oracle to hire away Red Hat's top talent since those workers are more likely to be worrying about their job security, said software industry consultant Joshua Greenbaum.

"Larry plays a hardball game," said Greenbaum, who runs Enterprise Applications Consulting. "This shows he hasn't lost his touch for savvy moves or drama."

Ellison's flair has paying off recently as both Oracle's profits and stock price have been climbing.

Oracle's market value has increased by $34 billion this year, a gain of more than 50 percent that has increased Ellison's net worth by about $8 billion.