Now that the dust has settled on Red Hats April 10 announcement that it plans to buy JBoss for $350 million, CEO Matt Szulik took time to talk to eWEEK Senior Editor Peter Galli about the deal, its ramifications and the potential partner fallout that may follow.
Did Red Hat initially approach JBoss about this acquisition, and when was that?
I have known [JBoss CEO] Marc [Fleury] for a long time and we have had many neutral discussions. But it was Red Hat that seriously approached Marc and the JBoss investors about the acquisition some nine months ago.
Were you concerned when you heard that JBoss was negotiating a deal with Oracle, and had that deal taken place, what would your backup move have been?
I need to be candid with you, I never had that discussion with Marc or his people as I did not find it terribly relevant because we were focused on getting Marc and his team as part of an open-source company.
From your perspective, why is this deal so important to Red Hat, and how does it position the company going forward?
It certainly broadens our product portfolio into an adjacent market, the middleware market. Over the last 18 months we heard growing requests from government and commercial accounts that had JBoss and were using Tomcat and Hibernate and wanted Red Hat to take a more direct position in that market. They also wanted the service competencies that we can deliver globally.
The commercial markets are beginning to standardize on a Linux and open-source position—financially, technically and license wise—and we in a very good position to pursue those relationships.
Also, we believe that the whole notion of component-based application development needed to have an open source influence amidst the large proprietary vendors so that the standards and interfaces, essentially at the application level, have representation in an opinion from an open source organization.
Clearly Marc has done a great job of recruiting great technologists and developers and we were really anxious to have the interactions with those teams and ultimately have them as part of our development team.
Where would you like to see Red hat positioned as a company over the next few years?
If you look at the evolution of Red Hat, we first had to legitimize an economic model of open source. In 2000 the business subsisted of selling a retail box at CompUSA and Frys, so to think that today we are running and managing some of the worlds most complicated computing architectures, whether for the production of movies or financial transactions, it is a great statement to the continued evolution of what we believe is software as a service.
But the JBoss acquisition is really a strategic one, as it puts us very close to a group of developers and moves us into the next generation application development platform. And when you augment that with the work we are doing around certification and testing, and the security models we are building in and around the Linux operating system now that we can move up and through the middleware space and the inclusion of the directory technology, what you are beginning to see is Red Hat building an economic model, product portfolio and a service relationship that will position us as the next generation enterprise technology company.
Concerns about Growth
Are you at all concerned that you may have paid too much for JBoss?
First and foremost, you need to look at the growth of the JBoss business, which continues to grow at 100 percent, and our earn-out considerations continues to focus on that 100 percent year-on-year growth. You also really never know the value of what you paid for an acquisition until three or four years down the road.
My response to The Street has been that well see in 2009/2010, as its not just the technical integration of the technology, its also the sales and marketing—all of the things we believe we can drive with synergies, but now the proof is in the execution. Well see in three or four years if it turns out to be a fair price or if it was expensive. But we feel really fortunate to have got some of the worlds most creative Java thinkers and developers as part of our growing open-source development community.
Some analysts have predicted conflict down the line between Marc Fleury and yourself. How do you plan to deal with this?
When I was recruited to join Red Hat back in 1997, one of the board members told me that I always seem to get along with weird people. Creative and brilliant minds dont think and act traditionally, and I seem to have the DNA that respects that and can work well with it. We have made other acquisitions, and the founders of those companies are still at Red Hat. When I sat down with Marc, we had three core agreements that gave us both the confidence that we will be able to work well together.
The first is a tremendous respect for building an engineering culture around trust and autonomy for the individual developer, and we think identically about that.
Second of all, we have a love of, and commitment to, open source and the collaborative development process.
Thirdly, Marc and I both think from the same page that this is a for-profit business. So the core things align themselves very well around the relationship between Marc and me going forward.
It is no secret that many analysts and customers are talking about the possible negative impact this deal is going to have on your existing relationships with IBM, Oracle, and BEA. How do you respond to that and how are you positioning yourself in the eventuality those predictions prove true?
One of the most important things Red Hat and open source has done for the marketplace is move the relationship of the customer from a secondary to a primary role because of the transparency. With that in mind, I think more of our sales are being driven by the customer point of view and demand as opposed to the push coming from the large vendor.
The route to market now has changed because of broadband communications where developers can download JBoss, experience the technology and form an opinion. It is not like the historical enterprise selling model of 10 years ago.
I also dont think we pursued this relationship with JBoss to go out and compete with the existing interests in the middleware space. We see this as a cornerstone of our overall long-term strategy to bring solutions to the open-source developer, build a common infrastructure model around security and maintainability and management through the enterprise based on open source.
Those competencies we believe will be value-adds to our existing relationships with IBM, but it is way premature as we cannot engage IBM or any other partners on this until the deal has closed.
Reaction to the Deal
Have you received any indication at all from IBM and Oracle and others about their reaction to the deal?
No, I have not.
Some analysts are seeing this deal as a potentially good thing for Novell and its SUSE Linux operation, especially if IBM and Oracle turn away from you and towards them. Should that happen, how will you counter it?
Were going to counter by producing an outstanding Red Hat Enterprise Linux 5.0 by the end of the calendar year, by creating an optimized open-source platform with JBoss and by continuing to being the technical excellence and service and delivery we already do.
Also, one of the things that should not be discounted is the fact that just three to five years ago Linux was operating in relatively low-risk environments; file-and-print, mid-tier database serving and the like.
Linux has now moved into data centers worldwide, its heterogeneous, the competency and the service delivery is fantastically complex now and no longer trivial.
As we look at our partnering strategy, its increasingly how to bring these values to the customer and as we have seen historically with IBM and others, we partner in the afternoon and compete in the mornings.
But things are a little different now, particularly as JBoss competes head-on with IBM in the middleware space.
Last week IBM made an announcement with Novell at LinuxWorld, and it wasnt that long ago that IBM put $50 million into Novell. As Bob Dylan once said, you dont have to be a weatherman to know which way the wind blows.
Your competitors like Sun plan to capitalize on any possible unhappiness by IBM with this deal. Does that bother you?
I find it amazing that people would be so reckless to comment about our relationships with partners before the deal has even closed and when we have enjoyed a very productive relationship with IBM for eight years.
Do you plan to grow the company and move into new product markets through acquisition or internal development?
Both, it will be both, but right now we are focusing on this acquisition, which was not simple, as well as getting the integration done and getting the channels as productive as possible with a consistent message to the worldwide market place. Then we will look at whats next.