JBoss to be acquired by Red Hat – The Oracle (Red) Heat is off

Yesterday it was announded by JBoss that it signed an agreement to be acquired by Red Hat. See the announcement at www.jboss.org. After several months of rumours about a possible take over by Oracle, it now became clear that “JBoss, Inc. will become a division
of RedHat. I [Marc Fleury] am staying on, reporting to RedHat?s CEO, Matthew Szulik,
with direct responsibility for the JBoss organization.” See a similar announcement on RedHat.com. They give a clear motive: “Open source leaders agree to join to drive down the cost of developing and deploying web-enabled applications. By acquiring JBoss, Red Hat expects to accelerate the shift to
service-oriented architectures (SOA), by enabling the next generation
of web-enabled applications running on a low-cost, open source platform.”

Marc goes on to say: “RedHat is our big brother. We
walked in the footsteps of RedHat from a business standpoint, copying
their subscription model and the Operations Network approach to scale
our business. RedHat emerged as the clear leader of the Linux pack, proving to the
marketplace the viability and scalability of the subscription-licensing
services format and that yes, you could build a good old-fashioned
profitable business out of open source, whodathought?.

Our partners will readily see the
beneficial implications of this move. How many times I have heard you
wish that we remain independent. In this rapidly consolidating and
maturing industry, a pole will emerge around the open source pure play
we represent. I believe this will strengthen our ecosystem as we merge
with the Redhat ecosystem.

But I believe it is our customers that will benefit the most from this
move. By remaining independent in a company with a shared mission and
business model, you know our service to you will continue unchanged. We
will accelerate the timeline of products. Consolidating the geographies
of open source became a strategic consideration. We need to build the
21st century of open source and we need to build it fast and we need to
build it aggressively. Joining ranks with RedHat increases our chances
of success. RedHat and JBoss share a joint culture of pure-play open
source. While different, our cultures are both centered around the
mission of changing the industry through the development, distribution
and support of free and open source software. We share a joint mission
to put the customer squarely back in the driver’s seat, by offering
relief from “perpetual” software licensing pain, with the flexibility,
choice and peace of mind that comes with highest-quality open source
software, backed by highest-quality services.

Boss, Inc. today makes me proud,
very proud. I won?t lie to you, it is not without emotion that I signed
those final papers on Friday night at 11:57PM, being very conscious
that we were turning a page in our history. JBoss/RedHat tomorrow will
achieve even greater things than we have done separately. The road
ahead will bring challenges; the competition will react to this
defining move.”

Tranaction details

Red Hat will acquire JBoss for approximately $350 million in initial
consideration, plus approximately $70 million subject to the
achievement of certain future performance metrics. The transaction
consideration is composed of approximately 40% in cash and 60% in Red
Hat common stock. The acquisition is expected to be completed around
the end of Red Hat’s first fiscal quarter (May 2006), subject to
customary closing conditions, including regulatory approval.

So why in truth?

Of course the statements released at these times by the two companies are not necessarily the best to go on. They will only say what sounds good and looks good. If this deal was only to make some people at JBoss more affluent, that would not be a good motive to announce in press releases. That does not mean it cannot be part of the motive. Or if this move is primarily intended to bring a lot of fun loving bright open source developers together to love even more fun and do extremely bright development in pairs, that too would not be the primary reason broadcast to the world. Even though Marc Fleury hints at it.

Precisely what the synergy between the two will be may not be readily clear to every one. Of course, there is the issue of scale economies, shared facilities and overhead etc. While the two companies have things in common – the benefits of joining forces are not obvious. Then again, the open source business model is still a bit odd. So who can really say?

Little ironic: see the article  Red Hat Puts Out the Developers’ Welcome Sign
that discusses three application development stacks to be offered by
RedHat starting January 2006. None of these includes JBoss.. Another
interesting article: RedHat plans app server in 2004..: “Red Hat and JBoss Group held discussions about bundling JBoss’ popular
Java software with Red Hat’s application server, but the talks broke
down because the two parties could not come to terms over sharing
support services revenue, according to JBoss executives. JBoss Group,
like Red Hat, gives its software away and charges corporate customers
for consulting services.”