Slumping sales, criticism from analysts over its licensing costs and the loss of market leadership in the database software market. The new millennium so far is one that Oracle CEO Larry Ellison will want to forget.

Like hardware vendor Sun Microsystems, Oracle is suffering from the dot-com hangover. At the height of the boom, sales of Sun servers and Oracle databases went hand-in-hand. But like Sun, Oracle is now being forced to adjust its strategy to suit a more sober business climate.

First, it is targeting the small and medium sized business (SMB) sector more closely, particularly in Europe, says Sergio Giacoletto, Oracle's executive

vice president for the Europe, Middle East and Africa (EMEA) region.

Second, Oracle is paying more attention to lower cost platforms, particularly the open source operating system Linux on commodity Intel-based servers. Finally, Oracle is also cultivating the channel more assiduously, says Alfonso Di Ianni, Oracle's senior vice president of marketing for EMEA.

However, Oracle's definition of an SMB is distinctly at odds with that of the average economist's: Giacoletto defines it as companies with revenues in the region of EU200 million and EU1 billion, whereas most economists would define its a company with up to EU200 million in revenues.

Oracle also tends to define an SMB differently, depending on the country. In Italy, for example, where the economy is dominated by a handful of leviathans and millions of small businesses, the definition of an SMB is very different from the UK where mid-sized business are more prominent.

This, perhaps, reflects a contradiction at the heart of Oracle's SMB strategy – one seen at many major software vendors that have tried to re-focus from a moribund high-end to a seemingly more vibrant SMB sector.

Quite simply, trying to appeal to the SMB market with a similar product to that sold to major corporates puts a company at risk of cannibalising its own high-end business. Few vendors find it an easy balancing act.

Alternatively, they find it difficult to price the product enticingly enough to appeal to the SMB sector and this is the problem that Oracle seems to have.

Oracle's 'Lintel' – Linux on Intel – products are not priced any more cheaply than its products for other Unix platforms. For example, the Oracle 9i Real Application Clusters (RAC) product costs the same $60,000 per processor price on Red Hat Linux as it does on Hewlett-Packard's HP-UX and Sun's Solaris.

Yet Ellison put sales of Linux-based software at the heart of Oracle's strategy during his keynote speech at the company's recent user conference in Copenhagen, Denmark.

He may be mindful of the platform consolidation that will take place during the course of the next few years, combined with the development dollars that companies such as Hewlett-Packard, IBM and the UnitedLinux coalition is putting behind Linux.

But for now, Linux remains a platform of value-conscious users and at the moment, Oracle software is still perceived to be too expensive for such penny-pinching users.