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Red Hat-JBoss Deal Could Alter Co-Opetition In Open Source World

Red Hat's planned buy of JBoss puts it in direct competition with key Linux partners including IBM, Oracle, SAP and BEA and will alter the competitive landscape in the open source market, observers claim.

After the official announcement Monday morning, investment firm Goldman Sachs issued a statement praising Red Hat's move to buy JBoss for $350 million. The New York investment firm acknowledged it would come as a blow to many of Red Hat's Linux partners as well as operating system rivals Novell and Microsoft but asserted it's a good risk.

"Red Hat will need to move up the infrastructure stack and add a database, application server, portal and integration technology to deliver an open source infrastructure stack to compete with that of BEA, Oracle, IBM and Microsoft," the firm said in a statement. "Efforts by Oracle and IBM to help Red Hat gain traction in the enterprise with Linux has just backfired. We view this as a strategic negative for Oracle, IBM, BEA and Microsoft."

The deal with open source application server leader JBoss will cost the Raleigh, N.C. Linux leader roughly 17 percent of its $805 million in cash and debt securities but was a necessary maneuver as customers seek the same efficiencies in the open source world that they get in the commercial software world, according to Technology Business Research.

"The consolidation of the two companies echoes the ongoing consolidation of the commercial software stack, offering many of the same benefits of integration, scale and differentiation of revenue streams," said Stuart Williams, a senior analyst at the Hampton, NH firm. "It's a sizable hit on the company's current assets but a calculated risk."

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