Oracle's CEO Larry Ellison has pondered aloud on the possibility of his company buying either Novell or Red Hat with the aim of acquiring a base in the Linux camp, and competing more effectively with Microsoft in both OS and applications markets.

The company even launched a study into the possibilities of buying one of those two companies, and has considered buying Novell, the second biggest Linux distributor after Red Hat. Oracle relies on Linux to help staunch Microsoft's revenue stream.

However, it seems more likely that Oracle would develop its own version of Linux because it would be cheaper. He said that the company did not want to spend billions of dollars for open source software that could be easily developed in-house. He told the FT: "The reason I have a hard time writing cheques for billions or hundreds of millions of dollars for things that are open source is that if we could do this, other people could do this too."

Ellison told the Financial Times that he wanted to sell not just databases but "a full stack", including the OS. He explicitly cited Microsoft as the model, as it owns both the OS and applications. "You could argue that it makes a lot of sense for us to look at distributing and supporting Linux," he said.

The problem for Oracle was thrown into stark relief last week when Red Hat bought JBoss for $420m, so that the leading Linux distributor now competes directly with Oracle in the middleware market. "I don't think Oracle and IBM want another Microsoft in Red Hat," Ellison told the FT.

As a result of Ellison's comments, Red Hat's stock price fell seven per cent.

With a Linux OS under its belt, Oracle would resemble its competitor Microsoft Corp. more than it would another chief rival, SAP AG. Currently, Oracle competes against Microsoft in the middleware, applications and database markets, though Oracle Java-based middleware offerings are not considered to be best of breed. Oracle and SAP compete mainly on enterprise applications.

Gordon Haff, a senior analyst with Illuminata, said he suspects Ellison's comments to the Financial Times were less about a real plan to offer Linux and more about the CEO's tendency to think out loud.

"It sounds more like Larry speculating and musing more than anything else," he said. "I very much doubt if there is an outpouring of customer desire for a Linux from Oracle at the end of the day."

However, Haff said it certainly is possible and would in fact be easy for a company of Oracle's size to develop, release and support its own Linux distribution, as well as certify its own applications to run on that Linux.

If that were to happen, though, he said it's not likely that Oracle's competitors would be lining up to certify their applications to run on an Oracle Linux distribution. Therefore, the only customers using the OS would be those that only run Oracle applications in their IT infrastructure, Haff said.

Another area in which Oracle is looking to expand include software hosting.