NEW YORK: The proposed $350 million buyout announced last week by Linux distributor Red Hat, Inc., of Java middleware maker JBoss, Inc. is seen by analysts as the first major consolidation initiative in the open source software realm that has potential to challenge the might of software giants like Microsoft and Sun Microsystems.
They admit the cash and stock deal has fallacies -- The $350 million Red Hat is paying for JBoss ($420 million if JBoss hits all revenue targets) is higher than Red Hat's $278 million in revenue for the fiscal ended 28 February. And JBoss is said to have had around $80 million in revenue during the fiscal. But, they say the scope the merged entity holds out -- middleware has huge prospects -- is the key element of Red Hat's offer and it is the future that is looked at.
The combined entity, they point out, has all the potential needed for taking up the challenge -- highly popular products, technology talent and fiercely loyal customers. In the middleware space, the firm can indeed give a fierce fight to BEA Systems, IBM and Oracle.
Red Hat chairman and chief executive officer Matthew Szulik has said open source is not just Linux any more. He feels the combination of Red Hat's open source operating system with JBoss' Java middleware will attract cost-conscious companies doing service-oriented architecture (SOA) implementations.
Both the companies are into consulting and support contracts, which are their main sources of revenue than mere software licenses. JBoss will indeed come in handy in Red Hat's efforts to go beyond the open source software as the former has high visibility in North American and European markets. Among JBoss' popular products is the JEMS middleware suite, which has been accepted well in the market. It is also coming out with a web server soon.
Offering free software or application is no more a novelty. Sun Microsystems has its Java Enterprise System application server on an open source platform. IBM does not charge for its WebSphere CE.
So, the analysts feel, Red Hat may now be aiming to offer the next generation of web-based applications running on open source platforms.
Says Szulik, "It is at Red Hat's very core to help unlock the power of open source and open communities to innovate across industries, geographies and economies."
He said the two companies are fully aligned around the belief that the open source development model continues to change the economics of enterprise IT in favor of the customer. "We truly believe in the potential of software innovation, once freed from the fetters of proprietary development."
JBoss' chief executive officer Marc Fleury makes an identical comment. He says his customers are increasingly standardizing their infrastructures on open source technologies and that they are seeking a stable global open source vendor to support them.
Analysts also expect that the unification may lead to the creation of a brand that is an end-to-end, open-source stack -- capable of taking on Microsoft's integrated platforms and Sun's enterprise system.
They feel the alignment could be of benefit to IBM's hardware and IBM Global Services but it will offer a tough competition for its WebSphere. Also affected will be Novell, which is competing against Red Hat, but partners with JBoss. The circumstances could see closer ties between IBM and Novell and there are analysts who believe the two could even merge.
Even Microsoft has a partnership with JBoss and its future is not immediately known. It is unclear whether the new entity will offer support for JBoss' Windows customers, which is around 50 per cent of JBoss' entire installed base.
