April 10th, 2006
Red Hat to acquire JBOSS for $350M. Novell now clearly in play.
Via ZDNet News, Reuters has the details:
Linux distributor Red Hat said on Monday that it signed an agreement to buy open-source company JBoss for at least $350 million, a move that expands Red Hat’s product line and adds to its growth potential. The transcation is 40 percent cash and 60 percent in Red Hat stock, with an additional $70 million owed, subject to financial performance…. Red Hat currently sells support for a competing open-source application server, called JOnAS, from the France-based consortium ObjectWeb….. For a growing number of open-source start-ups and their investors, the $350 million acquisition number is a validation of the open-source business model and an attractive pay out. JBoss was largely self-funded and took in $10 million in venture investment in 2004.
The implications of this deal are very wide ranging. Should Red Hat decide to include an implementation of JBOSS in its distributions of Linux (including Fedora), this acquisition will in fact be a serious blow to JOnAS (JOnAS is an open source implementation of the Java Enterprise Edition specification). The numero uno most important thing to enterprises is stack certification. To the extent that Red Hat certifies certain builds of JBOSS with certain builds of its Linux distributions, JOnAS (the previous throne sitter in Red Hat’s stack) will end up at a huge disadvantage.
This move puts a huge amount of pressure on some other players as well in a couple of different contexts. Traditional Java Enterprise Edition (JEE) players like IBM, BEA, and Oracle — all of whom market their solutions with Red Hat’s Linux — have a new and very dangerous threat on their hands because they’ll have to explain to customers why their commercial JEE implementations on Red Hat make more sense than Red Hat’s open source implementation of JEE (JBOSS). For WebSphere-seller IBM which has already been dabbling in open source-based JEE but who as been perceived as a tightly bound partner to Red Hat, this could really force IBM’s hand in new directions.
For example, might Big Blue look to make SuSE Linux maker Novell its most preferred Linux partner over Red Hat now that Red Hat is a direct competitor to any and all of IBM’s JEE solutions? Or, now that there are three one-stop shops for operating systems and middleware runtimes (Microsoft with Windows and .NET; Red Hat with Linux and JBOSS; Sun with Solaris and its Java Application Server), will IBM have to buckle and acquire Novell to be the fourth? It’s probably not a bad idea given how SuSE Linux runs on IBM’s big iron and how IBM could use an additional way to turn up the heat on Microsoft. In fact, between IBM’s portfolio which includes app servers, database servers, the Lotus collection, and the Rationale stuff and Novell’s portfolio of which Linux and its directory services stand out, a merger of the two not only allows IBM to go more toe-to-toe with Microsoft, it does so with a lot more open source flair; one of Microsoft’s biggest problems right now.
Whether or not Oracle will just sit on the sidelines and wait for something to happen remains to be seen. Knowing CEO Larry Ellison, I can’t imagine him letting others control the fate of his company. Anything can happen at this point. If I had to guess, an acquisition of Red Hat makes the most sense for Oracle. The result would completely change the character of the software titan, but better position it against both IBM and Microsoft both of whom are have been putting more pressure on Oracle anyway. Particularly on the database front. If IBM makes a play for Novell, Oracle would have almost no choice in the matter. For Oracle, the question is about making a pre-emptive strike or not. If it waits too long — perhaps until after IBM goes after Novell — then suitors of Red Hat would probably have to pay a huge premium to complete such an acquisition.
Two other suitors that shouldn’t be counted out are HP and Sun. Sun, which has a huge amount of cash in the bank, is another company that can’t exactly afford to sit around and wait for something to happen. HP got out of the software business a while ago but may be left with no choice to get back in. Not only has Sun hinted at an acquisition of Novell before, such a deal would represent a return of a prodigal son (bits and pieces of Unix intellectual property) to one of its forbears. What the final configuration of such a consolidation sweep would mean for the ongoing legal battles involving SCO, IBM, Red Hat and Novell is anybody’s guess.
Meanwhile, BEA could easily get marginalized or acquired as a result of all this consolidation. BEA doesn’t have the cash or the clout to play in the big leagues (it might be able to make a play for Novell but IBM or Sun would almost certainly sweeten the deal). Should Novell and Red Hat get acquired by a companies other than Oracle, Oracle would have probably have no choice but to acquire BEA (making BEA one of the few companies that could end up doing some acquiring or being acquired). Toolmaker Borland would probably get sucked into the vacuum in some way as well.
In a way that seemingly minor conflicts around the world can erupt into flash points between superpowers, the bottom line is that if a consolidation wave sweeps through the industry in 2006, it’s this acquisition of JBOSS that will have sparked it.
