Red Boss – will it truly be open?

It seems that the open source business model has been top of mind for many in the technology industry as of late.  First comes Checkpoint's attempted purchase of Sourcefire and now comes Red Hat's announcement that it will acquire JBoss.  The acquisition price of $350mm is pretty sweet validation for the open source model considering that the multiples are about 20x trailing revenue ($20mm estimated revenue in 2005) and 6-7x forward ($50-60mm estimate for 2006).  And on top of that the company only raised $10mm which means it was incredibly capital efficient.  That being said, we have to remember that this is not going to change the corporate IT landscape overnight.  First Red Hat may end up competing with many of its partners like IBM who have helped validate Red Hat by offering the muscle and handholding of the IBM brand and employees.  Secondly, just because Red Hat's name is on it does not mean that CIOs will immediately change their buying decisions.  As I mention in an earlier post in 2004, Red Hat has needed to find more avenues for growth and what better way to do that than moving up the stack from the OS.  Here is an excerpt from my post in 2004:

It seems that many of the bigger open source players are building out their own stacks ala Microsoft and others in the pursuit of growth and profits like traditional closed-sourced software companies.  Isn't this the antithesis of what open source stands for?  Rick Sherlund, Goldman's software analyst, says that it makes sense from a financial perspective since it allows vendors to cross-sell and lock-in the customer - customer retention is a good thing after all, isn't it? While all of the open source players did their best to dodge this question and claim that they are really open, MySQl was the only company that really seemed credible here as its goal was to be part of everyone's stack, including the Microsoft .NET one.  JBoss and RHAT clearly seemed to be building their own middleware and open source stacks while at the same time claiming an open architecture.

Fast forward 18 months later and you have the first move in that model - Red Boss.  Sounds like Microsoft?  I thought part of the reason technologists bought open source was to not be locked in to any one vendor.  This will be interesting to see as the need for revenue, growth, and profits drives some of the larger open source players and to see if they continue to remain 100% truly open.  Should I tweak the JBoss app server just a tad to make it work better on Red Hate vs. Suse or .NET?  Let's watch how Red Boss balances the need to meet Wall Street expectations for quarterly numbers with the need to make its customers happy by helping them avoid proprietary vendor lock-in.

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This post was written by who has written 358 posts on BeyondVC.

4 Responses to “Red Boss – will it truly be open?”

  1. Jeff Clavier Apr 13, 2006 at 12:24 pm #

    RHAT if offering $350M in cash and stock + a $70M earn-out, not $250M.

  2. Ed Sim Apr 13, 2006 at 12:29 pm #

    good catch-i mistyped it and as my forward multiple reflects the right price

  3. Kris_Tuttle Apr 16, 2006 at 11:01 pm #

    It does feel more and more like just another more advanced competition to lock in customers again. Companies like Skype and even Google seem to be offering more and more features that just work in their environment. Even the new Google calendar is aggressive at offering to import your existing calendar data but doesn’t give you much comfort that you can ever export it back again… of course you can “share” your data with other online users to drive even more traffic to Google…;-)

  4. Senthil Nathan Jun 8, 2006 at 8:31 am #

    JBoss software comes with free and open source license. Theoritically anybody can learn and use it (after breaking head?). So Red Hat is paying $350+ million only for the team and the talent. Probably they are paying for the brand name also. Talent is a less tangible asset when compared to license or patent or brand. There is always a risk of talent erosion over time. That is one of the reason Larry Ellison refused to buy JBoss. Some time back a small group split away from JBoss (team) and started their own open source consulting group. There will also be competition from companies like spikesource and sourcelabs.

    If RedHat can manage to retain the team and expertise intact, combined entity can sell the expertise for a wider customer base than JBoss as a standalone community.

    If customers are not happy with service from Redhat, they can always switch to companies like HP or SpikeSource who have considerable experience in JBoss and other open source. HP is already shipping JBoss pre installed in some of its servers. It is betting on JBoss (software) to compete against WebSphere from IBM.

    There are also other open source projects like Compiere and Pentaho which use Jboss software as a free base. They will also build Jboss expertise inhouse overtime.

    For more JBoss related business news you can join

    jboss_expert-subscribe@yahoogroups.com

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