Time to call the Red Hat-JBOSS deal a failure?

Time to call the Red Hat-JBOSS deal a failure?

Summary: I think this represents a cautionary tale about the difference between open source and proprietary business models.


JBOSS logoOne of the first in-person interviews I did for this blog was with Marc Fleury, then CEO of JBOSS.

He was celebrating a business deal, but soon after had much more to celebrate, the acquisition of JBOSS by RedHat for $350 million.

Fleury left Red Hat in 2007, and since then I've gotten a steady parade of news releases, about former JBOSS executives starting brand new companies. In fact, I am overdue for a visit to one of those companies.

Meanwhile, JBOSS rival SpringSource has gone from strength to strength. Its latest acquisition is Covalent. It's hosting user meetings in five-star resorts.

Springsource is rapidly becoming what JBOSS sought to become, proving that an open source business model based on enterprise Java middleware can work. And when I talk to SpringSource officers, they often brag about taking deals and market share from JBOSS.

I think this represents a cautionary tale about the difference between open source and proprietary business models.

When you buy a proprietary software company you're getting its contracts, its people, its goodwill, and its code base, along with all the copyright and patent protections of that code base.

Integrating such an acquisition is fairly simple. A customer's costs of switching vendors is high. Employees lose access to the code base when they leave.

None of this is true in open source. Integration can be complex. Customers' costs for switching vendors is low. Employees can fork your code at will.

I can't tell you whether Red Hat has made a profit from JBOSS. It does seem obvious they have missed opportunities, and key assets have dribbled away.

So is it time to call this deal a failure?

Topics: Software, Enterprise Software, Open Source, Software Development

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  • so we should all abandon OSS?

    Hi Dana,

    I have a few issues with your post (I was with JBoss from
    early 2004 until I left Red Hat in November 2007 by the
    way). Because SpringSource is holding user events in 5-
    star resorts, while RH is a little more responsible with their
    expenses (they could afford 5 star resorts in theory, but
    would that be fair to shareholders?) -- that's a pretty
    irrelevant argument, don't you think? And while
    SpringSource is bragging about taking market share from
    JBoss, I seem to recall fondly all the times (daily) that Marc
    would brag about taking market share away from BEA and
    IBM. And while we actually had significant evidence to
    back up these claims (I don't see any market share reports
    to back up the SpringSource stuff you mention), you still
    didn't see anyone in the industry, especially as respected
    as yourself, making claims that it was time for BEA or IBM
    to call themselves a failure.

    I could nitpick other details further, but I won't. The big
    problem I have is that your central premise is a very scary
    one indeed. If RH has truly "failed" to integrate JBoss,
    because of the inherent issues with the OSS model not
    transferring ownership of its codebase or customer base,
    then you're basically saying that all OSS acquisitions are
    doomed. In other words, you're saying OSS belongs at the
    project level, but try and grow it into a company with a
    viable exit strategy, and it is guaranteed to fail. I'm one of
    those RH managers who left to join new tech start-ups --
    maybe I should get out of the OSS world while I still can?

    The RH-JBoss deal had some issues, but I am thankful to
    RH for paving the way. Each subsequent acquisition of an
    OSS company should, theoretically and hopefully, get
    easier. I guess we'll have to wait and see with MySQL...

    Katie Poplin
  • RE: How do you define failure?

    I think it would be hard to declare RHT's acquisition of JBoss a failure based on the fact that a number of executives have left for other start-ups (most of them open source) and that SpringSource appears to be doing relatively well in open source Java middleware. Last I checked RHT was dropping $80M annually to the bottom line and SpringSource is still burning cash. RHT used the JBoss acquisition as a way to accelerate its strategy to expand beyond Linux to providing more of the infrastructure software runtime stack for its existing customer base. That expansion was a very reasonable strategy decision to provide continued growth at RHT and establish it as the entrenched leader and consolidator of open source alternatives to players like ORCL. RHT's annual revenues have grown $160M (57%) from year ending Feb 2006 to the expected, soon to be released year ending Feb 2008 number. They have not done as well with expense control and the bottom line number, even if they don't hold user events at Five Star Resorts. True, one reason for an acquisition is talent and RHT has not done well at keeping some of that talent. However, even though some key talent departed, many have stayed and continue to move RHT beyond its Linux roots. RHT has yet to prove that it can execute well on its strategy and Wall Street does not yet show much enthusiam for it. RHT's $3.4Billion market cap is just more than half of what it was just after the JBoss acquisition. Note however that RHT paid for 60% of the JBoss deal with equity, so you could argue it was paid with an inflated currency and really much less than the advertised price. In any event, I think you would be premature to call it a failure. Bill Miller, XAware.org
    • Good, solid interesting points

      Thanks for writing that, Bill. I think you make a good case that the jury remains out on this.

      I don't think the RedHat acquisition of JBOSS is a complete failure, but it seems a relative failure compared to where JBOSS was moving on its own, as evidenced by the success SpringSource is enjoying.

      But I'm willing to listen to the other side, and I hope others are as well. Including the folks on Wall Street.
  • RE: Time to call the Red Hat-JBOSS deal a failure?

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    Vadim P.
  • Springsource success does not equal JBoss failure!!!


    Spring is successful because it is used in a lot of environment, many of which are JBoss customers, that use Hibernate and other JBoss products. I am not sure that these two issues are correlated at all. The fundamental disconnect in why JBoss is perceived as not being a successful merger is well described in Marc Fleury's blog. It is way too early to call this one, with Oracle buying BEA and IBM sunsetting Websphere 5.1, there is a lot of opportunity for JBoss in the coming years.

    Ben Sabrin
  • Glassfish is killing JBoss

    Although progress on key features and innovation in JBoss
    seems to have died since Red Hat acquired them, the biggest
    issue they face from what I see is how popular Glassfish
    (Sun's reference implementation) is becoming. That
    community popularity has to put a crimp on Red Hat's ability
    to monetize what used to be the only open source app server
    out there.