Red Hat-JBoss: Hitching Open To Service-Oriented ArchitectureRed Hat-JBoss: Hitching Open To Service-Oriented Architecture

The $350 million deal last week to combine Red Hat, the leading Linux distributor, with JBoss, the front-runner in open source Java middleware, creates the first real potential powerhouse of open source software.

A powerhouse, that is, if Red Hat can fill in key missing software pieces to that stack. And if the pair can gain ground fast enough to avoid being trampled by that other powerhouse with a penchant for open source, IBM. And if Red Hat can meld in a startup company built by a controlling CEO and a prideful bunch of programmers.

All right, so there are some risks. But a combined Red Hat-JBoss appears to have the wherewithal--popular products, development talent, and devoted customers--to challenge established middleware suppliers such as BEA Systems, IBM, and Oracle. At the same time, middleware is growing in importance, as companies expand their use of service-oriented architectures.

Red Hat-JBoss isn't in the big leagues yet. The $350 million in cash and stock that Red Hat paid for JBoss--$420 million if JBoss hits all revenue targets--is greater than Red Hat's $278 million in revenue for its fiscal year ended Feb. 28. Credit Suisse projected JBoss, with 155 employees, would have $80 million in revenue this fiscal year. The benchmark: IBM middleware generated $2.7 billion in revenue last year, IDC estimates.

Yet this deal is more about the future of open source in business. "This means open source is not just Linux any more," Red Hat chairman and CEO Matthew Szulik says. Szulik asserts that the combination of the open source operating system with JBoss' Java middleware will appeal to cost-conscious companies doing SOA implementations. Both Red Hat and JBoss make money on consulting and support contracts, not software licenses.

Red Hat Needed Help

Red Hat's revenue rose 42% last year, but it has struggled to assemble a product line that goes beyond Linux. It tried with the Jonas application server, an open source project of ObjectWeb, a French consortium, but Jonas has been nearly invisible in U.S. software surveys, while JBoss has gained traction in North America and Europe.

JBoss brings a suite of middleware called JEMS that includes a portal, messaging, a rules engine, and business process management and transaction capabilities. It's promising a Web server before midyear. Such suites, whether open source or proprietary, now lie at the heart of many IT infrastructures. All the commercial vendors offer integration servers, Web servers, and portal servers alongside their application servers.

Having a suite of offerings led Daiwa Securities America to expand its use of JBoss, says Steve Dunston, a VP and enterprise systems architect at the brokerage. Daiwa has used the JBoss application server in trading systems for more than a year and also relies on the rules engine to ensure trades adhere to financial regulations. "Those rules can change pretty quickly," Dunston says. "The rules engine was a flexible way to get those changes into operations without code. We were lucky JBoss added rules to their stack."

Daiwa shows how open source can creep into an organization. Dunston started out experimenting with JBoss, then gradually used it to replace some IBM WebSphere application servers. He now uses JBoss to run five production applications.

Free Isn't Enough

Just offering a free application server, though, is hardly distinctive these days. Sun Microsystems made its Java Enterprise System application server open source last year. IBM doesn't charge for its WebSphere CE, an app server that comes from its acquisition of Gluecode, a company built around the Apache Software Foundation's Geronimo project. IBM supports the Geronimo project as an open source JBoss competitor, employing a third of the 27 developers authorized to commit code to it.

IBM represents a problem in several ways. Red Hat and IBM have been close allies as IBM promotes Linux on its server lines. Does JBoss make them direct competitors? "The obvious conclusion is yes," Szulik says. But IBM competes and cooperates with plenty of companies. JBoss' modest sales aren't an imminent threat to IBM's multibillion-dollar middleware business. IBM has 38% of the app server and middleware market, BEA Systems 12%, and Oracle 8%. JBoss, measured by revenue, has less than 1%. But JBoss is probably used in more companies than its revenue suggests. It tends to creep onto developers' desktops as a platform to test their Java applications, and only later move into production settings where people pay for support and consulting. IDC predicts most application servers will eventually be open source, just as Apache came to dominate the Web server market.

Red Hat also will find itself needing to cooperate with rivals. JBoss' application server runs on Windows and Solaris as well as Linux. "It broadens the company's market opportunity beyond the Linux operating system," Credit Suisse analyst Jason Maynard writes in a research report. "Red Hat was previously vulnerable to being outflanked in the market had another vendor (Oracle) acquired JBoss."

At Least It's Not Oracle

After Oracle acquired Sleepycat Software, maker of the Berkeley DB open source database, in February, speculation abounded that Oracle would go after JBoss next. Oracle never acknowledged such negotiations, but JBoss CEO Marc Fleury says they fell apart last month. "Red Hat won the deal because of the difference in style," he says. Szulik and CFO Charlie Peters visited Fleury at JBoss headquarters in Atlanta to propose the acquisition. "There was no deal team. It was a principal-to-principal approach," Fleury says. Red Hat intends to create a JBoss division at those Atlanta headquarters. The company's developers are mostly in India, Switzerland, the United Kingdom, and the United States.

Red Hat, while supporting Linux kernel development, doesn't employ large numbers of develop- ers or frequently deal with them the way JBoss does. Szulik hopes to build a stronger bond with the vital developer community, since people experimenting with your company's software will build features around it.

Merging JBoss' developers' culture into Red Hat's distribution and consulting approach will be one of the trickier parts of the deal. Fleury, known for his independence, admits it will be a change: "I can't run my mouth as much as I used to." But he says he intends to protect JBoss' culture.

Daiwa's Dunston isn't worried. "It's a lot better than JBoss being purchased by Oracle," he says. He wants Fleury to keep doing what he's been doing, building out a Java middleware suite that works with JBoss. And Red Hat should help Fleury broaden JBoss' community and customer base.

Big-name JBoss users include Continental Airlines, La Quinta Inns, Netflix, Nortel, Sabre, Wells Fargo Services, and Wyndham International. To pull in new customers, it must attract companies looking for a low-cost way to build SOAs. Linux always has been a good starting point; now the Red Hat software can build out a business process, apply rules governing it, and connect it to other software via Web services. But pieces are missing: The JBoss stack doesn't have its own Web server, though the company promises one by the second quarter. Most critically, JBoss doesn't have an enterprise service bus, a messaging layer that's often the girder of an SOA. "A full-featured ESB is in the works," promises Fleury. But he won't put a time frame on delivering it.

Red Hat will have to keep enhancing its middleware suite as businesses' SOA needs expand. Plenty of startups have caught on to Fleury's original intuition that open source can be applied to a software segment to create a for-profit enterprise. With venture capital flowing to this idea, Red Hat itself could be among those targeted. Red Hat's failed foray with Jonas shows its brand alone isn't enough to build on. But now it has Fleury's drive along with the cooler talents of Szulik.

Instead of being distracted by doing an initial public offering or finding a buyer, Fleury will be free to do what he set out to do--push an open source product as far as he can into the enterprise. Predicts Fleury, "It's going to be a very defensible position."

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JBoss Didn't Play By Open Source's Rules