As

Oracle

(ORCL) - Get Report

CEO Larry Ellison crows about his company's new database software,

IBM

(IBM) - Get Report

is slowly siphoning away his company's customers.

Ellison made his most recent pitch for Oracle's latest version of its database software, called

9i

, at

Open World

, its week-long customer lovefest in San Francisco. The 9i platform, which stores and manages huge amounts of information, is designed to accommodate the hefty computing needs of application service providers, companies that deliver software services over the Web. Oracle even went so far as to offer a $1 million guarantee, promising that its product would run three times faster than similar products from IBM and

Microsoft

(MSFT) - Get Report

.

But the new software won't be ready for months, so for now some customers are turning to IBM's

DB2 Universal Database

. This is in large part because it costs three to five times less than Oracle's current database,

8i

, according to a recent report by Mark Shainman of Stamford, Conn.-based research firm

Meta Group

. (Both Oracle and IBM are Meta Group clients.)

Shainman's report, titled "DB2 Hits the Price/Performance Sweet Spot" says DB2 is emerging as one low-cost alternative to Oracle's 8i. The key is that IBM's database software is priced on a per-chip (processor) basis. Oracle charges according to the type of chip -- the more powerful the chip used, the more the customer pays. The idea is that the price increases according to the number of users, appropriate for high-traffic Web sites that need massive megahertz.

But the result is often much more expensive for consumers, analysts say. A research note by Alexa Bona of

GartnerGroup

reports similar findings, saying, "By 2001, Oracle's

Power Unit

model will be as much as 230% more expensive than the processor-based model." (Both Oracle and IBM are GartnerGroup clients.)

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When asked about the price difference between 8i and DB2 detailed in the report, Ken Jacobs, Oracle's vice president of product strategy, said, "That's just not true."

Still, some customers, albeit small ones, seem sufficiently dismayed by the price difference to trade in Oracle's database products for IBM's. Recent converts include

Deckchair.com

,

LiveAid organizer Bob Geldof's airline reservation Web site, and

Zantaz.com

, a financial archiving service.

GetRelevant.com

, an online promotions and marketing company, also opted for IBM's database after testing products from each company eight months ago. "IBM was cheaper and gave us great service," said Mitchel Harad, GetRelevant's chief executive.

Oracle's Jacobs says, "You can't draw any conclusions from the anecdotes of a few customers. Our market share is not declining."

That may not be the case for long. The Meta Group report says, "We expect competition from Oracle's application division to drive many ISVs

or independent software vendors to adopt the DB2 or

Microsoft's SS2000 platform."

Meanwhile, Oracle's push into business applications -- software for procurement, supply chain management and customer relationship management, among other uses -- has turned former business partners into direct competitors. This year,

SAP

(SAP) - Get Report

,

Siebel

(SEBL)

,

PeopleSoft

(PSFT)

,

i2 Technologies

(ITWO)

and others have chosen DB2 as their development platform over Oracle's 8i.

"If a customer is looking for advice on a database, we recommend IBM's DB2. It's an excellent, scalable platform with competitive pricing," says Rick Bergquist, PeopleSoft's chief technology officer. "And we intend to beat Oracle in our applications space."

Ellison, in his keynote speech last week, said the 9i database is scheduled to ship in spring 2001. But customers shouldn't get sweaty palms just yet; the product isn't in beta testing, and most analysts believe that testing could take a year. The latest version of Oracle's 8i database products began shipping just this September. Database software accounts for more than 70% of Oracle's overall revenue.