April 10, 2006 1:09 PM PDT
Red Hat and JBoss: No turning back for open source
The deal, announced Monday after months of speculation, gives Red Hat a suite of open-source Java middleware to complement its Linux distribution. The companies have a similar open-source business model, and both offer corporate customers subscription support services and the ability to download products for free.
The combined lineup significantly boosts Red Hat's product portfolio, making the company a more important provider for business customers and developers. Red Hat said the acquisition will add to its earnings next year and that fast-growing JBoss was on track to take in $60 million in revenue this year.
Analysts said the combination of two high-profile open-source companies underscores the expanding impact of open-source software and practices on the business software market.
By assembling a larger set of products and services, Red Hat can better mimic--and compete with--established corporate software companies. The industry's largest companies--Microsoft, IBM, Oracle, Sun Microsystems, Novell and BEA Systems--are each seeking to build a full "stack" of software infrastructure products with a healthy third-party product "ecosystem," or partner network.
"This (acquisition) represents the reassembly of a (vendor) ecosystem, which you now have with open source," said Forrester Research analyst Michael Goulde. "This is a step toward establishing a branded ecosystem, as opposed to a do-it-yourself ecosystem."
The hefty price tag for the deal--$350 million plus a potential $70 million, depending on the financial performance of the JBoss unit--underlines Red Hat's optimism that it can attain rapid revenue growth, Goulde noted.
JBoss had become an attractive takeover target because of the wide adoption of its Java application server, and it had had discussions with a number of acquirers, said JBoss founder and CEO Marc Fleury.
Red Hat CEO Matthew Szulik said the company's decision to acquire JBoss was driven by corporate and government customers who are showing growing interest in the open-source model.
"It was inevitable that open-source software was going to challenge the economics of (software) infrastructure and continue to move up to the application level, whether it's Red Hat or other firms," Szulik said in an interview with CNET News.com.
Fleury, who will now sit on the executive board of Red Hat as senior vice president and general manager of the JBoss division, called the deal "a defining moment."
"It's another proof point that (open source) is transforming the industry," he said.
Listen upWhat's behind the Red Hat-Jboss combination? News.com's Martin LaMonica puts his questions to Red Hat CEO Matthew Szulik and Jboss chief Marc Fleury.
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Next up: Integration
Analysts were generally favorable on the deal, and Red Hat's stock received a jolt, rising 9 percent on Monday afternoon. In addition to giving Red Hat a broader product line, the acquisition gives the company a way to differentiate its offering from Linux competitor Novell.
But even with the fast-growing company's promise, there are some potential pitfalls, said analysts and industry executives.
By entering the Java middleware market, Red Hat places itself into competition with some Linux partners, notably Oracle and IBM. Different corporate cultures and a headstrong personality in Marc Fleury pose integration challenges as well, said analyst.
Although they both seek to sell to high-level IT executives, Red Hat's software is generally used by Linux systems administrators while JBoss' software is aimed squarely at Java developers.
"They haven't been chasing the same customers, which can be a challenge," said Dave Gynn, director of enterprise tools and frameworks at open-source services firm Optaros. "It's good in that it opens up opportunities, but at same time, they haven't been selling to same customer."