VMware puts squeeze on Red Hat with SpringSource buy
I've been writing a lot lately about SpringSource, largely because it has demonstrated a big vision (nothing less than the redefinition of the application server and an end-to-end application story), and so I wasn't terribly surprised today to see VMware buy SpringSource for $420 million. On roughly $20 million in sales, much of that services, it's a rich valuation, but one that is absolutely deserved given SpringSource's potential.
In fact, it's almost certain that SpringSource sold too early, at least as measured the size of potential exits it could have had given a bit more time. Like Zimbra before it, SpringSource had unbounded potential to shake up the application server and development market.
I remember talking to Peter Fenton, partner with Benchmark Capital and an investor in both SpringSource and Zimbra. He indicated that the firm had made tremendous efforts to keep Zimbra from selling to Yahoo as it still had so much potential to build toward an even bigger valuation.
Happy as Fenton is with the SpringSource acquisition, I wonder if he feels the same as he did about Zimbra. So much money left on the table.
Indeed, I found out about the SpringSource acquisition back in July, apparently even before formal discussions started between the companies (due to a leaky source at VMware). SpringSource CEO Rob Bearden denied the existence of acquisition discussions between the two companies and Rod Johnson, the company's founder and CEO, was on vacation at the time.
But in denying the rumors, Bearden, COO at SpringSource, suggested that given "one more year...(SpringSource) will be bigger than MySQL," acquired by Sun for $1 billion.
I think Bearden was right. The company's valuation has been soaring due to efficiently run operations (Bearden) and a big vision for the company's prospects (Johnson and others). It was only a matter of time before it IPO'd or was acquired.
I had hoped, however, that Red Hat would complement its JBoss business with SpringSource, but it's not to be, and this doesn't bode well for Red Hat, on two counts.
First, with every acquisition of a leading open-source company by anyone other than Red Hat, Red Hat becomes more and more isolated. Other companies are integrating open source into their business strategies. Red Hat's differentiation as "the" open source company doesn't have much of a shelf life left.
Second, SpringSource's ubiquitous Spring Framework already threatened Red Hat's booming JBoss business. But add VMware's leading virtualization technology and suddenly Red Hat is under siege by a highly credible and disruptive competitor that could well outflank it.
Johnson describes the offering:
Working together with VMware we plan on creating a single, integrated, build-run-manage solution for the data center, private clouds, and public clouds. A solution that exploits knowledge of the application structure, and collaboration with middleware and management components, to ensure optimal efficiency and resiliency of the supporting virtual environment at deployment time and during runtime. A solution that will deliver a platform as a service (Paas) built around technologies that you already know, which can slash cost and complexity. A solution built around open, portable middleware technologies that can run on traditional Java EE application servers in a conventional data center and on Amazon EC2 and other elastic compute environments as well as on the VMware platform.
Here's what it looks like:
The SpringSource + VMware vision
(Credit: SpringSource)Astute observers will notice that the operating system, Red Hat's core competence, becomes increasingly less relevant in this world. Vendors like Oracle, Microsoft, IBM, and others have less to fear from this threat, because they're already building high-value solutions above the operating system.
Red Hat doesn't. Red Hat is exposed by this VMware and SpringSource combination. It needs to become more aggressive.
Red Hat is, of course, taking a leadership role in virtualization and increasingly cloud computing. But it will need to quickly move beyond its dependence on its operating system business to sell a larger, strategic story or it faces the prospect of being an excellent, limited basic infrastructure vendor.
Follow me on Twitter @mjasay.
Matt Asay brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. You can follow Matt on Twitter @mjasay. 
Bet VMWare will take a huge writeoff next year. Just like Sun did with MySQL.
Unbelievable how companies get taken for a ride in the hype-train.
As for VMWare, it depends on execution of their cloud computing platform. It is an aggressive move to get into the application framework space but its in their ability to deliver a platform that will capitalize on Spring's popular framework that will define and determine if they wil do a writeoff next year or not as @jpbgmail said.
SpringSource is definitely not a hyped-up company. Its core framework is innovative, easy to use, and encourages best practices in software design, test, and build.
Maybe they are trying to make the company more attractive to another buyer. Perhaps IBM or Oracle.
Great insight in your blog. Thanks.
There was a lot of open animosity between SpringSource and RedHat at the JavaOne Pavilion last May. The two camps were shooting at each other in their presentations. When I talk to both camps the animus ran deep.
Where should Open Source Software (OSS) companies look for a valuation model? I'm hoping the SpringSource valuation tells the investor community that a 10-times valuation is reasonable for a company with a license/service revenue mix.
What do you think?
BTW, I posted my interview with Rod Johnson and Javier Soltero on my blog at:
http://www.pushtotest.com/docs/thecohenblog/oss
-Frank
- by Lakshmipathi_G August 17, 2009 1:35 AM PDT
- I can't understand why would VMware needs Web application company like Springsource?
- Like this Reply to this comment
-
(9 Comments)It makes sense ,in case Vmware brought something like rPath or something related to cloud computing- ISV. I can't understand their strategy