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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.

IBM represents a problem in several ways. Red Hat and IBM have been close allies as IBM promotes Linux on its server lines. Does JBoss make them direct competitors? "The obvious conclusion is yes," Szulik says. But IBM competes and cooperates with plenty of companies. JBoss' modest sales aren't an imminent threat to IBM's multibillion-dollar middleware business. IBM has 38% of the app server and middleware market, BEA Systems 12%, and Oracle 8%. JBoss, measured by revenue, has less than 1%. But JBoss is probably used in more companies than its revenue suggests. It tends to creep onto developers' desktops as a platform to test their Java applications, and only later move into production settings where people pay for support and consulting. IDC predicts most application servers will eventually be open source, just as Apache came to dominate the Web server market.

Red Hat also will find itself needing to cooperate with rivals. JBoss' application server runs on Windows and Solaris as well as Linux. "It broadens the company's market opportunity beyond the Linux operating system," Credit Suisse analyst Jason Maynard writes in a research report. "Red Hat was previously vulnerable to being outflanked in the market had another vendor (Oracle) acquired JBoss."

At Least It's Not Oracle

After Oracle acquired Sleepycat Software, maker of the Berkeley DB open source database, in February, speculation abounded that Oracle would go after JBoss next. Oracle never acknowledged such negotiations, but JBoss CEO Marc Fleury says they fell apart last month. "Red Hat won the deal because of the difference in style," he says. Szulik and CFO Charlie Peters visited Fleury at JBoss headquarters in Atlanta to propose the acquisition. "There was no deal team. It was a principal-to-principal approach," Fleury says. Red Hat intends to create a JBoss division at those Atlanta headquarters. The company's developers are mostly in India, Switzerland, the United Kingdom, and the United States.

Red Hat, while supporting Linux kernel development, doesn't employ large numbers of develop- ers or frequently deal with them the way JBoss does. Szulik hopes to build a stronger bond with the vital developer community, since people experimenting with your company's software will build features around it.

Merging JBoss' developers' culture into Red Hat's distribution and consulting approach will be one of the trickier parts of the deal. Fleury, known for his independence, admits it will be a change: "I can't run my mouth as much as I used to." But he says he intends to protect JBoss' culture.

Daiwa's Dunston isn't worried. "It's a lot better than JBoss being purchased by Oracle," he says. He wants Fleury to keep doing what he's been doing, building out a Java middleware suite that works with JBoss. And Red Hat should help Fleury broaden JBoss' community and customer base.

Big-name JBoss users include Continental Airlines, La Quinta Inns, Netflix, Nortel, Sabre, Wells Fargo Services, and Wyndham International. To pull in new customers, it must attract companies looking for a low-cost way to build SOAs. Linux always has been a good starting point; now the Red Hat software can build out a business process, apply rules governing it, and connect it to other software via Web services. But pieces are missing: The JBoss stack doesn't have its own Web server, though the company promises one by the second quarter. Most critically, JBoss doesn't have an enterprise service bus, a messaging layer that's often the girder of an SOA. "A full-featured ESB is in the works," promises Fleury. But he won't put a time frame on delivering it.

Red Hat will have to keep enhancing its middleware suite as businesses' SOA needs expand. Plenty of startups have caught on to Fleury's original intuition that open source can be applied to a software segment to create a for-profit enterprise. With venture capital flowing to this idea, Red Hat itself could be among those targeted. Red Hat's failed foray with Jonas shows its brand alone isn't enough to build on. But now it has Fleury's drive along with the cooler talents of Szulik.

Instead of being distracted by doing an initial public offering or finding a buyer, Fleury will be free to do what he set out to do--push an open source product as far as he can into the enterprise. Predicts Fleury, "It's going to be a very defensible position."

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JBoss Didn't Play By Open Source's Rules