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Taking stock at JBoss

CEO Marc Fleury contends that open source has changed the software business forever. And a deal with Microsoft helps prove it.

JBoss CEO Marc Fleury, who once showed up dressed as the Joker at an awards ceremony, had a clever surprise for his competitors this week: a partnership with Microsoft.

The deal calls for the software giant and JBoss, an open-source Java software company, to explore ways to link their respective server and development products. And it's definitely not a joke, Fleury says. Behind it were 18 months of discussions over being allies even as they battle for the attention of software developers.

Fleury spoke to CNET News.com about Microsoft, the competitive landscape and how the open-source model is shaking up the software business for the likes of IBM.

Q: People were surprised by this deal with Microsoft. Some actually thought it was a joke. How did it come together?
Fleury: We were in contact with Microsoft for 18 months or so trying to find a way to work with them. It took quite a bit of time for Microsoft to get comfortable. As people noticed in the blogs, we are a double minus: We're Java and we're open source. But this is a case where two minuses can make a plus.

We operate in the Java camp. But our customers use a lot of the Windows operating system. When we did a survey of our user base, and 50 percent were using Windows, that got the attention of the Microsoft folks.

There's been a little bit of skepticism as to what it means. You can have a joint press release, but what, exactly, are you committing to? Even the press release says you'll "explore" ways to work together. Are you committing engineers from both sides to work together?
Fleury: Absolutely. The press release does describe what we will explore together, and there are engineering efforts there. Namely integrating Active Directory and single sign-on--that's something our portal team will be looking at. On the tools front end and back end, SQL Server integrated better with (database access development software) Hibernate and Enterprise JavaBeans 3 (EJB 3).

IBM is pushing open source when they really mean to be pushing Linux because that helps them fight Microsoft.

These are simple technical points that we can easily deliver on. Then stepping back, a lot of (server-side) Java innovation nowadays with EJB 3 uses Java and annotations, and the simplified way of programming. A lot of these ideas are also present in the Microsoft .Net framework and C# language. The technologies are not that far apart from a syntactic standpoint. We can envision putting the EJB to .Net so that even Visual Studio could have access to that in the future.

But clearly, you're still vying to win over developers.
Fleury: It's not a partnership like what we have with Hewlett-Packard or Novell, where the sales force of HP and Novell are engaged in selling JBoss and supporting it. With Microsoft, we compete on the .Net Framework (development software) front. So Microsoft is going to continue pushing their .Net framework. But on the operating system, it's a no-brainer. We're Java guys; we don't care.

It would seem that having Microsoft as a partner gives JBoss a boost of credibility. Is that part of the intent here?
Fleury: Absolutely. The significance of the announcement was noticed. Microsoft opened up with Sun (Microsystems) first and foremost by settling their lawsuit. The second reach-out Microsoft does with the Java camp is with us at JBoss. That is, of course a great endorsement, even though "endorsement" is a little strong. We're just partnering on delivering a good experience for common customers.

Who do you see as biggest competitors? Are you primarily trying to displace BEA Systems and IBM these days?
Fleury: We've always been in heavy competition with IBM and BEA. This doesn't change that. It's true, historically, that it's been more BEA than IBM. Increasingly, we have ex-IBM customers. There's also Oracle and potentially Sun, with their new open-source offering. There's Red Hat, always. So the competitive landscape is as brutal as usual.

What we're doing and what Red Hat is doing shows that these are very profitable operations.

You made your mark with a Java application server that developers, in particular, were attracted to. And now you've expanded that into portal and other middleware areas with JEMS (JBoss Enterprise Middleware System). What's your focus on the product side?
Fleury: We want JEMS to be the ubiquitous stack for middleware. There are obvious pieces were lacking that we're putting into.

Such as an integration server?
Fleury: We've talked about a Java Business Integration (standard). We'll announce the specific areas (later).

Open-source business models are clearly getting a lot of interest these days from investors. Yet there's some question whether it's a sustainable revenue model. Will there be multibillion-dollar companies with an open-source business model?
Fleury: It's clear there is a lot of investment in open source right now. This is really a result of the fact that open source is today in the market, and it's footprint's increasing, it's adoption is increasing.

The venture capital money market recognizes that open source is here and going to stay, and they are saying, "We might as well try to build companies around that movement."

As one of the leaders in the space, along with MySQL and companies like Red Hat, I wish them luck. I want to see them succeed. We need more companies in the open-source space to gain bigger validation, like the older companies did, at one period in time.

The big change with an open-source business model is usually that vendors don't charge for a license. And clearly, the subscription model of charging customers is gaining favor. But is a company sustained by support revenue proven in the software industry?
Fleury: What we're doing and what Red Hat is doing shows that these are very profitable operations.

The speed at which you're forced to do the transition becomes the real management issue. Too fast, and your P&L gets thrown off balance.

It's not surprising that open source focuses on the support and service portion of software, which is the profitable part of software, anyway. The state of software today is that licenses are not profitable but rather cover the cost of sales and marketing. Because we have a much lower cost of sales and marketing, we can do without a license. We know that the financial model is viable--it's just the old model minus the license, which doesn't generate profit, anyway. Will everyone survive? We'll see. Will there be a big company? I sure hope so.

What's the financial picture at JBoss?
Fleury: We are cash flow-neutral. There's more cash coming in than cash coming out, which is the basic financial definition of cash flow profitability. We're funding our growth by operations, as opposed to by equity capital.

Are you planning on going public?
Fleury: We are always operating to go public. That's a goal of any start-up.

I was at a meeting this summer, where you and an IBM software executive had a public debate. And you told the IBMer, "You don't control the time frame." What did you mean by that? Were you saying you're going to commoditize your markets?
Fleury: Everybody understands the end game: a mix of proprietary and open source. I think your covered that I'm fond of saying that (eventually), it's going to be IBM, Microsoft and JBoss. And also from a financial subscription model, pure maintenance is the way to go. It's true that IBM, BEA and Oracle still have big license businesses today. IBM still makes $2 billion on WebSphere licenses. How do you transition from a world where you have a heavy dependency on licenses to a world that is purely maintenance? That transition is what can hurt you. The speed at which you're forced to do the transition becomes the real management issue. Too fast, and your P&L gets thrown off balance.

And you want to throw the others off balance?
Fleury: No, I don't want to throw anybody off balance. I'm in the business of building JBoss. But it is a difficult point for IBM. The speed at which we commoditize is an issue. They're comfortable with low-end offerings; they're less (comfortable) with high-end.

The (Microsoft) announcements put the spotlight on the fact that nobody has the monopoly on loving open source. IBM is pushing open source when they really mean to be pushing Linux, because that helps them fight Microsoft. But when it comes to their own software, it's a different story. Microsoft can turn the tables and say, "We love these (JBoss) guys, and now go figure it out."

So open source is a major trend, not just us. You can see a whole cottage industry doing that, and the big guys are seriously thinking about the future and where it goes.