Will Red Hat Lose Powerful Friends with JBoss Buy?

By Peter Galli  |  Posted 04-11-2006

Will Red Hat Lose Powerful Friends with JBoss Buy?

Does Red Hat's acquisition of JBoss for $350 million conflict with the very cozy relationship that has existed between Red Hat, IBM and Oracle?

Some analysts think it does.

"IBM and Oracle now clearly see JBoss as a major competitive threat and will be less likely to favor Red Hat going forward," said Scott Donahue of analyst firm Tier 1 Research, a division of The 451 Group.

"We also predict that there will be cultural clashes between JBoss CEO Marc Fleury and Red Hat CEO Matt Szulik going forward."

But that deal is not necessarily bad news for Novell in the longer term, he said, since IBM would be "forced to move more rapidly to embrace Novell, and perhaps even acquire the company. Novell will likely benefit from the transaction in the longer-term, as it will continue to work with JBoss and will find more love from both Armonk [IBM] and Redwood Shores [Oracle]," he said.

Click here to read more about how IBM's WebSphere challenges JBoss.

But JBoss board member David Skok, who is also a general partner at venture capitalist Matrix Partners in Boston—an early investor in JBoss —told eWEEK in an interview that he did not believe the deal would have any impact on JBoss' existing good relationship with Oracle.

But he was a little less sure about IBM's reaction.

"There is some risk with IBM and they may well take offense given that JBoss competes head-on with their WebSphere products," he said.

Asked if any possible chilling of IBM's relationship with both JBoss and Red Hat concerned him, Skok said there is always a positive for every potential negative and the deal was likely to garner the combined firm more business from Hewlett-Packard.

"I believe HP is looking for a single-stack provider that can help them synchronize releases and have just one place to point to for support issues," Skok said.

"I expect HP to be very excited about this move and to put a lot more emphasis behind this stack than they would have done with the two vendors previously. They are also actually a bigger channel for Red Hat than IBM."

But the business side of the open-source community is touting the deal as indelible proof that there is a valid business model around open-source software and that customers are willing to pay for those solutions.

The deal also effectively disproves many of the comments that competitors with proprietary business models have made about Linux and open-source software, most notably that customers are not willing to pay for it, that these solutions are free and that there are no business models around them, OSDL (Open Source Development Labs) CEO Stuart Cohen told eWEEK in an interview on April 10.

OSDL is also embracing the fact that both parties to this deal are companies with long open-source histories.

Next Page: Keeping it in the open-source family.

Keeping it in the

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"The fact that Red Hat has had the success it has as an open-source company to generate the kind of cash that it has, as well as the stock price and market evaluation it has, is tremendous," Cohen said, adding that the fact that JBoss has also been as successful with an open-source model "is terrific in its own right."

Asked whether it was better for the industry that Red Hat had acquired JBoss rather then the much talked about potential Oracle acquisition of the company, Cohen said it was substantially better from a business model and customer adoption angle that an open-source company be the acquirer.

Read more here about HP's global support for the entire JBoss Enterprise Middleware Suite of products.

"Let's face it, Red Hat's revenue, profits and cash to hand is generated by customer sales, while the stock price is reflected in customer confidence and the company's expected future growth," he said.

While an Oracle acquisition of JBoss would have been good in its own right, Cohen said, the fact that Red Hat was big enough to buy another open-source firm at a large price "is what is really telling."

But Tier 1 Research's Donahue notes that while the move will help solidify Red Hat's leadership in enterprise Linux, "we can't help but have the feeling that the transaction seemingly was put together quickly perhaps after Oracle and JBoss could not come to terms."

The upshot of the acquisition is that JBoss would clearly stay in the open-source space and would significantly expand Red Hat's portfolio beyond its core Linux server market, creating a revenue and earnings upside, and helping solidify the company as the primary commercial open-source software vendor.

"But, we could argue that the transaction really didn't need to occur from a functional development standpoint. Red Hat and JBoss are already working together, and traditionally operating systems and middleware develop independently," he said.

Click here to read more about how JBoss CEO Marc Fleury said he had no plans to sell JBoss in the near future.

But the transaction would give Red Hat better competitive positioning against other Linux distributors as the company could now make the case for a more complete open-source portfolio, Donahue said.

But Novell said its model of allowing customers to choose the best mix of proprietary and open-source technologies based on open standards is still the right way to go.

Company spokesman Bruce Lowry told eWEEK that the Waltham, Mass., firm is committed to delivering a full open-standards-based infrastructure stack to its customers and stood by its model "to build, buy and partner to deliver and support that stack."

Novell will continue to offer and support the components of the stack that customers request, he said.

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