Red Hat-JBoss: Hitching Open To Service-Oriented Architecture
To make the merger pay, the companies need to prove they can be a foundation in shifting business IT strategies.
The $350 million deal last week to combine Red Hat, the leading Linux distributor, with JBoss, the front-runner in open source Java middleware, creates the first real potential powerhouse of open source software.
A powerhouse, that is, if Red Hat can fill in key missing software pieces to that stack. And if the pair can gain ground fast enough to avoid being trampled by that other powerhouse with a penchant for open source, IBM. And if Red Hat can meld in a startup company built by a controlling CEO and a prideful bunch of programmers.
Szulik bets big.
Photo by Reuters/Henny Ray Abrams
All right, so there are some risks. But a combined Red Hat-JBoss appears to have the wherewithal--popular products, development talent, and devoted customers--to challenge established middleware suppliers such as BEA Systems, IBM, and Oracle. At the same time, middleware is growing in importance, as companies expand their use of service-oriented architectures.
Red Hat-JBoss isn't in the big leagues yet. The $350 million in cash and stock that Red Hat paid for JBoss--$420 million if JBoss hits all revenue targets--is greater than Red Hat's $278 million in revenue for its fiscal year ended Feb. 28. Credit Suisse projected JBoss, with 155 employees, would have $80 million in revenue this fiscal year. The benchmark: IBM middleware generated $2.7 billion in revenue last year, IDC estimates.
Yet this deal is more about the future of open source in business. "This means open source is not just Linux any more," Red Hat chairman and CEO Matthew Szulik says. Szulik asserts that the combination of the open source operating system with JBoss' Java middleware will appeal to cost-conscious companies doing SOA implementations. Both Red Hat and JBoss make money on consulting and support contracts, not software licenses.
Red Hat Needed Help
Red Hat's revenue rose 42% last year, but it has struggled to assemble a product line that goes beyond Linux. It tried with the Jonas application server, an open source project of ObjectWeb, a French consortium, but Jonas has been nearly invisible in U.S. software surveys, while JBoss has gained traction in North America and Europe.
JBoss brings a suite of middleware called JEMS that includes a portal, messaging, a rules engine, and business process management and transaction capabilities. It's promising a Web server before midyear. Such suites, whether open source or proprietary, now lie at the heart of many IT infrastructures. All the commercial vendors offer integration servers, Web servers, and portal servers alongside their application servers.
Having a suite of offerings led Daiwa Securities America to expand its use of JBoss, says Steve Dunston, a VP and enterprise systems architect at the brokerage. Daiwa has used the JBoss application server in trading systems for more than a year and also relies on the rules engine to ensure trades adhere to financial regulations. "Those rules can change pretty quickly," Dunston says. "The rules engine was a flexible way to get those changes into operations without code. We were lucky JBoss added rules to their stack."
Daiwa shows how open source can creep into an organization. Dunston started out experimenting with JBoss, then gradually used it to replace some IBM WebSphere application servers. He now uses JBoss to run five production applications.
Free Isn't Enough
Just offering a free application server, though, is hardly distinctive these days. Sun Microsystems made its Java Enterprise System application server open source last year. IBM doesn't charge for its WebSphere CE, an app server that comes from its acquisition of Gluecode, a company built around the Apache Software Foundation's Geronimo project. IBM supports the Geronimo project as an open source JBoss competitor, employing a third of the 27 developers authorized to commit code to it.
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