VMware To Buy SpringSource For $362 Million

VMware is buying SpringSource, a supplier of simplified Java development software, for $362 million, plus the assumption of $58 million in unvested SpringSource stock and options. The total price tag comes to $420 million.

No open source code company has fetched such a price since Red Hat bought JBoss for $350 million in 2006, or Yahoo bought Zimbra for $350 million and Citrix Systems bought XenSource for $500 million, both in 2007. The acquisition aims to give VMware the means of broadening its virtual machine management software suite. VMware's CEO Paul Maritz said in an investor relations call announcing the acquisition Monday that VMware wants to develop "application awareness" into its burgeoning product set. The hypervisor and VM management software need to be more application aware in order to allow virtualized applications to move easily between enterprise data centers and public clouds.

"We need to make the loading and running of applications truly automatic. We need to be able to send the application to the cloud, dial in the service level, dial in the security level that you're willing to pay for, and have the cloud take it and run it for you," said Maritz said.

"This is an essential step if you're going to take complexity out of the environment," he added.

The deal underscores what's been growing obvious to many observers of cloud computing: the cloud and virtualization are closely related; applications as sets of virtualized files can be moved about at will and managed remotely -- or at least they will be in the future enterprise data center that taps into public clouds, such as Amazon's EC2.The deal also underscores how 150-employee SpringSource has become one of the most successful open source companies over the course of five years.

SpringSource CEO Rod Johnson, a former disgruntled Australian programmer serving the needs of London financial institutions, came up with a lighter weight method of developing Java applications, allowing an underlying framework to provide connectivity to sophisticated services, databases and networks rather than supplying all the APIs himself.

The Spring Framework as open source code was an immediate hit with Java programmers, who were struggling with an increasingly complex and rapidly expanding Java Enterprise Edition. JEE throughSun Microsystems (NSDQ: JAVA)' Java Community Process had dozens of vendors contributing new features, each more complex than the last, at a rapid rate.

Maritz said the SpringSource and VMware customer bases overlap heavily. "Gartner reports that half of the Fortune 2000 uses Spring," he said. The firm was on track to become profitable in the first half of 2010, despite the fact that it has been investing in acquisitions, such as the Web development expertise of Groovy and Grails, the Apache/Tomcat expertise of Covalent, and the Web application management expertise of Hyperic.

Still, there were questions during the investor relations call on whether VMware was sure an application development focused firm was the right acquisition for the virtualization market leader."We are doing this for the potential for innovation here," said Maritz in response. VMware quietly invested $2 million in SpringSource nine months ago to get a board seat and more closely observe the company. Now it will invest in stock options to retain the SpringSource brain trust and put it to work broadening the VMware product line into application distribution across the enterprise and between clouds.

The acquisition, expected to close in September, "places us right at the intersection of the most important forces in the software market today," said Maritz. They are "virtualization, modern application frameworks and cloud computing."

Virtualization software slides in between applications and the hardware to manage resources in the most effective way possible, regardless of which operating system is running the application. Application development frameworks in a somewhat similar manner slide in between the developer and the target system, neutralizing the need to target a particular operating system or runtime environment.

By combining these two trends, it may be possible to develop applications that can be run locally, across the enterprise, or in a shared runtime environment of the internal and external clouds, Maritz said.

VMware officials said a more detailed explanation of how SpringSource will fit into VMware's future product plans will have to await the next earnings call, scheduled for October. In its previous earnings call on July 22, VMware indicated its revenues for the second quarter of 2009 were essentially flat at $456 million from the second quarter of 2008. With SpringSource, it will be looking for a way to get astride the currents of application development for cloud computing, and recharge revenue growth.Asked how VMware will avoid offending partners by venturing so far afield into application development, Maritz responded that the plan isn't to disrupt existing competitor's business so much as "to do what nobody else is doing."