IBM is aggressively challenging Microsoft for medium- and small-business database users by pricing the Express version of its DB2 database at $598 for a single user running the system on a single processor.

IBM charges $99 for each additional user of DB2 Express. For 50 users, the database system would run up a price tag of $5,449, compared with $7,967 for SQL Server. Stephen O'Grady, an analyst at Red Monk, says he doesn't expect small and medium-sized businesses to respond to the pricing by ripping out their SQL Server installations and replacing them with DB2. "I'm leery of saying this is a groundbreaking move," he says.

But the low pricing "opens up DB2 to a new class of customers"--not only small-business users but also the independent software vendors who sell applications to them. "For ISVs, this is a very viable option as an embedded database" with a customer-relationship management or other application, O'Grady says. In addition, IBM's two chief database competitors, Microsoft and Oracle, both sell applications as well as systems software, leaving independent software vendors wary of ending up in head-to-head competition with the parent company if they use an Oracle or Microsoft database system.

"The barrier has been, 'IBM software is only for the big boys,'" says Chuck Zwicker, director of sales at Resolutions Consulting, a small-business systems-integration firm. "This gives them a chance to get their foot in the door."

IBM's Small and Medium Business software unit was one of the fastest growing parts of the company, producing $4.3 billion in revenue in the first quarter, ended in March, and growing at a rate of 13% over the same quarter a year ago. "Fifty-four percent of IT spending now occurs at small and medium businesses," Zwicker says.

IBM introduced several downsized Express products last year, including DB2 Express, WebSphere Application Server Express, and WebSphere Portal Server Express. The products are built on the same code base as the enterprise versions but are configured to run on only one or two processors, limiting their scalability.

Express DB2 runs on Windows and Linux and will be ported to IBM's AIX version of Unix later this year.