How Red Hat and JBoss will tempt more users to open source
Linux supplier Red Hat is to acquire open source company JBoss for £187m, plus an extra £38m if it meets future sales targets over a two-year period. The definitive deal is expected this month.
Marc Fleury, chief executive of JBoss, wants to expand the company’s global reach and accelerate its growth rate of 150%. With press rumours circulating that Oracle was a potential buyer of JBoss, Fleury has said it was Red Hat’s position in the open source business community that was key to the acquisition decision, which he claimed had the support of key staff.
JBoss will continue operating as an autonomous business unit within Red Hat, headed by Fleury. Crucially, JBoss’s existing four offices in the EMEA region are now augmented by Red Hat’s 31-site worldwide office network. Future branding has yet to be decided but the JBoss name is expected to stay.
The subscription-based business models that both companies use, and their open source underpinning, make for an excellent fit.
Red Hat belongs to a first-generation open source development model and has refined this with new product functionality delivered through Fedora Linux, following the “release early and often” open source principle. Red Hat’s enterprise edition provides a solid, bullet-proof Linux distribution with long release cycles.
JBoss, on the other hand, employs the lead developers in the open source projects at the base of its JBoss Enterprise Middleware System platform, and describes its approach as a second-generation open source business model.
The acquisition will create the first open source super-company, offering a number of advantages for both Red Hat and JBoss.
Red Hat, a company that at its most recent financials disclosure had £600m in cash and investment, has been growing steadily to dominate Linux distribution in the corporate world. JBoss, which is on track to positive cashflow by year-end, has been growing faster than Red Hat.
The combined entity provides a subscription model for first-class infrastructure software that also happens to be open source – whether that is a coincidence or not makes for an interesting debate.
The main element lacking in the portfolio is a database. Will there be a MySQL and Red Hat tie-up in the future? Possibly, but bearing in mind Red Hat’s and JBoss’s emphasis on the enterprise, there are other open source database candidates.
Red Hat has said that its investment in the Jonas J2EE Application Server will continue, but the suspicion must be that a future roadmap will provide convergence towards the JBoss J2EE Application Server.
JBoss offers solutions for multiple platforms: it can support .net front-end development and the PHP language for the Lamp (Linux, Apache, MySQL, PHP) stack, as well as Java-based systems. This flexibility will be retained, as will partnerships with rival concerns, such as Novell. The business world is full of such apparently contradictory relationships, no less so among open source businesses.
The combined Red Hat and JBoss entity offers a stronger business proposition to prospective enterprise users, for whom financial viability and business stability are important issues.
Both companies have made the open source element almost irrelevant for their customers, who willingly pay a subscription to receive certification that the software will work with other applications in the enterprise environment, and for the maintenance and upgrade support.
In addition, both Red Hat and JBoss have a professional services arm that brings in between 20% and 30% of revenue. With users paying no upfront cost for the actual software, Red Hat/JBoss software is cheaper than rival proprietary systems, making this a business that should keep rising.
Michael Azoff is senior research analyst at Butler Group
This was first published in May 2006