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Some thoughts on Red Hat’s JBoss acquisition

I got a call from a reporter today asking about the Red Hat JBoss deal.

RedMonk hasn’t had a chance to tease out all the implications but here are some of my immediate thoughts:

The acquisition makes sense-bringing together as it does the leading OSS Linux platform and the leading OSS JEE platforms. JBoss and Red Hat have similar business models “ essentially commercial open source – which are far more similar than other rumoured acquisitions- such as JBoss Oracle. So the fit is fairly clear. This is a depth and breadth play, rather than an attempt to find a new business model.

The deal will tend to make Red Hat more JEE-focused, which may not be such a good thing, given JEE is currently at somewhat of an inflexion point. JEE is undoubtedly still an extremely valuable play, but the market is certainly considering alternatives.

RedHat just took aim and shot its partner IBM in the foot. Or maybe IBM shot itself in the foot. While the deal makes little difference to IBM Systems and Technology group (hardware, servers and storage), for Software Group the deal serves to increase pressure on IBM margins.

JBoss is already being used as a negotiating lever by BEA and IBM customers to lower their WebSphere and WebLogic license fees. The RedHat deal will dramatically increase the trend, and puts RedHat in a very interesting position with respect to IBM customer relations. It now 0wns a surprisingly high proportion of corporate software expenditures at some joint customers. IBM’s decision to work with third parties that negotiate their own software licensing terms with IT shops could prove costly.

From a grassroots developer perspective JBoss just gained another potential advantage over IBM WebSphere Community Edition. Its all about the package, rather than the download.

I suspect in the long run that Oracle could still end up as JBoss steward, by acquiring Red Hat. Charles Phillips has plenty more deals in his sights.

The acquisition announcement is net positive for Novell SuSE “in light of its relationship with IBM. We might also now expect to see IBM reaching out to the Debian community. If you want to divide and rule, you need options to balance against each other. Red Hat is now a more troublesome partner than it was. We now have a new top reason why IBM could support Debian.

The deal shines a clear focus on the Linux market. Can IBM really afford not to be in control of its own distribution for the long term? Sure Linux can be swapped out but ISV relationships and hardened environments at customer shops can’t. Let’s not forget that IBM already paid Novell $50m to strengthen the relationship.

BEA will continue its push up the stack towards SOA, to avoid industry commoditisation.

The deal doesn’t have particularly significant ramifications for Microsoft.

SAP will likely appreciate the deal. One less partner to manage.

What about cultural fit? I think the cultures are actually pretty well aligned.

For one thing, JBoss and RedHat are both, in the immortal words of Peter Mandelson, "intensively relaxed about people getting filthy rich". That is something that could serve to bind Marc Fleury and Matthew Szulik together.

Red Hat will acquire JBoss for approximately $350 million in initial consideration, plus approximately $70 million subject to the achievement of certain future performance metrics.

"Certain future performance metrics"… I assume that Marc is tied in for a little while.

In summary, the combination is probably more worrying for IBM than an Oracle JBoss combo would have been. For customers meanwhile there is a fair amount of upside, not least in potential software licensing savings.

Categories: Uncategorized.

Comment Feed

11 Responses

  1. Interesting on the Debian option for IBM. But I think IBM saw this coming and has some ideas about a counter-stack for OSS. See more at http://blogs.zdnet.com/Gardner/?p=2277.

  2. I think this deal by itself is a big yawner. It would be interesting to see what the next steps are. The Charles Phillips comment here is provocative. There are many other interesting counter-moves possible… ( See more at http://wisezen.blogspot.com/2006/04/redhat-acquires-jboss-for-350-million.html )

  3. Thoughts on whether BEA could have consumed JBoss instead of RedHat?

  4. Will free open source developers “contributors” be willing to work for free while the “Tom Sawyer” leaders make hundreds of millions?

    Remember the Adventures of Tom Sawyer and Huckleberry Finn? Tom convinced his friends to work for free and paint the fence for him. “Come on…it will be fun”

    Now that there is big money involved will the patent lawyers start filing patent infringement lawsuits against these open source companies?

    Will the business models change once big companies pay hundreds of millions for an open source company?

    I wrote a blog today where I explore some of these subjects. read the whole story at http://dondodge.typepad.com/the_next_big_thing/2006/04/the_tom_sawyers.html

  5. The deal could pose a few problems from a marketing standpoint for Novell given its tight relationship with JBoss, I think, although as you say, it could also push IBM further into bed with Novell.

  6. Another thing that JBoss has in common with RedHat is that the so called OSS community hates them both.

    I’m not really familliar with RedHat’s adventures in proprietary land, but I do know that JBoss has been gathering enemies for a while with tactics such as described by Cameron Purdy:
    http://www.jroller.com/page/cpurdy/20040517 .

    BTW, Marc wrote a post about RedHat a while ago. Google never forgets:
    http://72.14.203.104/search?q=cache:dIsuxKQxiVAJ:jboss.org/jbossBlog/blog/mfleury/%3Fpermalink%3D5B557AB3231FE396D5C675A1367254DB.txt+&hl=en&ct=clnk&cd=1

    NotMyRealNameApril 11, 2006 @ 11:14 pmReply
  7. James, thanks for the early heads up, even though I am on the road (not holidays until tomorrow!) the press has been calling looking for my early feedback, I will wait till I get back but let me float another idea for you to consider….

    Red Hat was IMHO facing a slow death because they offered nothing to market of value because of the almost pure OS play they have been, and as a former Red Hat reference customer you know I speak from experience.

    The plays they have tried did little to bring value to the market in terms of gaining significant market strength while IMHO Suse has done much to fuel perception if nothing else they are gaining or growing, while not trying to market too heavily against RH and be in a core market of 1 which squarely puts them in the leagues of Open Source Folks as Microsoft.

    The end game is we need a market of 2 key players with IBM to keep the market honest and viable, so I do see Debian as a logical play while trying to set a perception of RH as a partner still, even though they now compete directly with the latest flagship marketing effort of Websphere for everything, or at least they want you to think that.

    The key will be beyond the possible Debian play, who else will that bring on to the IBM family to bring new emphasis and credibility to the OSS play from IBM and tie in with current marketing programs:

    1) Websphere anything is the hot button of today with IBM, so competitive products to that will not be tolerated.

    2) I have heard unconfirmed rumors that DB2 was considered by some as a boat anchor to some of the IBM strategy, could that be a new target as well?

    3) The old relationship with J.D. Edwards for ERP was a good one for IBM and after the PeopleSoft and then SAP acquisition it has been off the rails. Could a new play with the revitalized SAP and a SOA strategy put them back in play in a open source OS play?

    4) Finally, I don’t hear much of the open power servers that IBM announced over 15 mths ago, perhaps a revitalized system agenda with a new OSS player will bring that as a point solution to the market early on as well?

    Some thoughts and rumors but nothing of substance as I ramble on at this late hour….

    Nigel FortlageApril 12, 2006 @ 4:36 amReply
  8. great stuff nigel. the honest truth – i dont think ibm ever got serious about open power-they were afraid to cannibalise System i and p revenues.



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