IBM Takes Red Hat for $34 Billion

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” declared Ginni Rometty, IBM Chairman. At a cost of $34 billion, 10x Red Hat’s gross revenue, it had better be a game changer. See IBM’s announcement earlier this week here.

IBM Multicloud Manager Dashboard

IBM has been hot on the tail of the top three cloud hyperscalers—AWS, Google, and Microsoft/Azure. Will this change the game? Your guess is as good as anyone’s.

The hybrid cloud market appears to be IBM’s primary target. As the company put it: “IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.” IBM projects the value of the hybrid cloud market at $1 trillion within a few years!

Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. The next chapter of the cloud, noted Rometty, requires shifting business applications to hybrid cloud, extracting more data, and optimizing every part of the business.

Nobody has a lock on this market yet. Not IBM, not Red Hat, not VMware, but one thing seems clear; whoever wins will involve open source.  Red Hat, with $3 billion in open source revenue has proven that open source can pay. The only question is how quickly it can pay back IBM’s $34 billion bet.

What’s needed is something that promotes data portability and applications across multiple clouds, data security in a multi-cloud environment, and consistent cloud management. This is the Red Hat and IBM party line.  Both believe they will be well positioned to address these issues to accelerate hybrid multi-cloud adoption. To succeed at this, the new entity will have to tap their leadership in Linux, containers, Kubernetes, multi-cloud management, and automation.

IBM first brought Linux to the Z 20 years ago, making IBM an early advocate of open source, collaborating with Red Hat to help grow enterprise-class Linux.  More recently the two companies worked to bring enterprise Kubernetes and hybrid cloud solutions to the enterprise. These innovations have become core technologies within IBM’s $19 billion hybrid cloud business.

The initial announcement made the point Red Hat will join IBM’s Hybrid Cloud team as a distinct unit, as IBM described, preserving the independence and neutrality of Red Hat’s open source development heritage and commitment, current product portfolio, go-to-market strategy, and unique development culture. Also Red Hat will continue to be led by Jim Whitehurst and Red Hat’s current management team.

That camaraderie lasted until the Q&A following the announcement, when a couple of disagreements arose following different answers on relatively trivial points. Are you surprised? Let’s be clear, nobody spends $34 billion on a $3 billion asset and gives it a completely free hand. You can bet IBM will be calling the shots on everything it is feels is important. Would you do less?

Dharmesh Thakker, a contributor to Forbes, focused more on Red Hat’s OpenShift family of development software. These tools make software developers more productive and are helping transform how software is created and implemented across most enterprises today. So “OpenShift is likely the focus of IBM’s interest in Red Hat” he observes.

A few years ago, he continued, the pendulum seemed to shift from companies deploying more-traditional, on-premises datacenter infrastructure to using public cloud vendors, mostly Amazon. In the last few years, he continued, we’ve seen most mission-critical apps inside companies continue to run on a private cloud but modernized by agile tools and microservices to speed innovation. Private cloud represents 15-20% of datacenter spend, Thakker reports, but the combo of private plus one or more public clouds – hybrid cloud—is here to stay, especially for enterprises. Red Hat’s OpenShift technology enables on-premises, private cloud deployments, giving IBM the ability to play in the hybrid cloud.

IBM isn’t closing this deal until well into 2019; expect to hear more about this in the coming months.

DancingDinosaur is Alan Radding, a veteran information technology analyst, writer, and ghost-writer. Follow DancingDinosaur on Twitter, @mainframeblog, and see more of his work at technologywriter.com.

 

 

 

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