April 10, 2006 4:43 AM PDT

Red Hat scoops up JBoss

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In this calendar year, JBoss was on track to have revenue of $60 million and for 2007, to have $80 million, said Charlie Peters, Red Hat's chief financial officer.

Industry sources said JBoss' revenue in 2005 was about $20 million to $30 million. Peters added that JBoss will receive the $70 million incentive if it earns "slightly higher" revenue than targeted.

Fleury said he chose to sell the company to Red Hat because of the two companies' commitments to open-source development and his desire to create a large " pure play" open-source company.

"Our business models are very aligned. In many ways, Matthew (Szulik) was always the big brother. We copied what Matt and his gang did," Fleury said.

He declined to specifically discuss other suitors for his company, such as Oracle. However, he said joining Red Hat avoids an "impedance mismatch" of an open-source unit operating within a larger company that sells closed-source software with a traditional software license.

Szulik acknowledged that adding Java middleware to Red Hat's product line will place it in competition with Oracle and IBM, which sell similar products and are also large Linux partners.

"You will see those relationships move forward and, hopefully, (they) will evolve. Sometimes, we will be partners, sometimes we will compete," he said.

Szulik said the current Red Hat Java application server product, which is based on the Jonas software, will continue to be sold. However, he said JBoss' product line is "substantial and compelling, and we'll recognize it for what it is."

Burton Group analyst Anne Thomas Manes noted that Red Hat is paying a significant premium over JBoss' current revenue. Citing people familiar with the talks, she said Oracle's top offer to buy JBoss was $320 million.

"I'm a little concerned about how long this turns out to be positive for Red Hat's books," she said.

JBoss software is popular, particularly with Java developers, but existing Java server software companies garner far more revenue. BEA Systems' revenue last fiscal year, for example, topped $1 billion.

"Yes, JBoss is definitely making significant inroads, and there are surveys that show they are the most widely deployed application server, but how many of those (users) are buying subscription service? It's a small percentage," Thomas Manes said.

She added that the combination is good for people who choose open-source Java software because Oracle could have shut down JBoss or tried to steer customers toward its existing product line.

Entrenched middleware providers IBM, Oracle and BEA Systems have each sought to address the growing maturity and popularity of open-source software in the past two years.

IBM acquired a very small open-source Java application server company, called Gluecode, for less than $50 million. Oracle and BEA are making their Java server software work well with open-source Java tools.

In the database realm, Oracle sought, but failed, to acquire open-source company MySQL, a successful open-source company that earned just less than $40 million in 2005.

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Will Open Source business models change?
Oracle, Red Hat, IBM, Novell, and other large players are busy acquiring the most successful open source companies. How will this effect the open source community? Will the acquired companies remain open source? Will business models change? Would you bet your company on open source? Would you build mission critical applications on open source? Questions to consider for entrepreneurs and IT executives.

There are very few open source investment opportunities for VCs. I wrote a blog entitled "Open Source - the Darwinian approach to software" which looks at the odds of success for open source projects. Only the strongest survive.
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Posted by Don_Dodge (64 comments )
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I think this is a good move
I think this is a good move for Red Hat so they can offer a fuller spectrum of services for the Enterprise.

All they need to match what Microsoft offers is OpenOffice and MySQL!
Posted by dragonbite (452 comments )
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Impedance Mismatch
How geeky was that comment?! That takes me back to my RADAR days... ahhhh.
Posted by Andrew J Glina (1673 comments )
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