{"id":4083,"date":"2018-10-29T21:40:00","date_gmt":"2018-10-29T21:40:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/ibm-redhat_102918\/"},"modified":"2021-12-03T07:30:16","modified_gmt":"2021-12-03T07:30:16","slug":"ibm-redhat_102918","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/ibm-redhat_102918\/","title":{"rendered":"IBM \/ RedHat: A grand play at out-sharing Microsoft\u2019s open source economy"},"content":{"rendered":"

<\/p>\n

IBM’s ingestion of RedHat<\/span>, the third largest IT purchase in history, is all about Open Source and dominating cloud transformations.<\/p>\n

Commentators are already pitching this deal as long-awaited reinforcements to the trench-warfare of the cloud wars. But in reality, we need to look much deeper to understand what persuaded IBM to part with such an exorbitant sum of money for Open Source giant RedHat<\/span>.<\/p>\n

Did we read that right? $34bn? \u2013 And what will happen to renegade RedHat<\/span>?<\/span><\/h1>\n

Even for budding venture capitalists, the princely sum of $34bn is more than enough to make your eyes water \u2013 especially when it\u2019s hurled at a firm with annual revenues of just $2.9bn and headcount that will be just a drop in the Big Blue Ocean. So there must be more to IBM\u2019s thinking than a quick financial return \u2013 it\u2019s either a play to kick the other hyperscale<\/span> players out of play, or a push to get the upper hand in the increasingly valuable Open Source sharing economy<\/a>.<\/p>\n

If we dig into the financials<\/span>, it\u2019s clear that RedHat<\/span> is a profitable firm with a strong track-record in the space \u2013 describing itself as the leader of Open Source capability. In many ways RedHat<\/span> has been a champion firm in the growing enterprise adoption of Open Source \u2013 a service line that has moved a long way since its one-man-band and hobbyist background. Open Source is now big money, and all of the major providers want a piece of the action. In exhibit 1, we can see, alongside the financial information, a look at the number of partnerships both IBM and RedHat<\/span> have among the major IT Services providers.<\/p>\n

<\/p>\n

It should come as no major surprise that RedHat<\/span> has a larger pool of big providers in its partnership ecosystem \u2013 IBM, while having a relationship with many has always struggled to balance its role as a major competitor and a partner. This challenge is likely to impact RedHat<\/span> now, which has been able to play neutrality to build a strong partner network \u2013 some of which are likely to be sheepish now they\u2019re an arm of rival IBM. However, this risk has been addressed by a clause in the agreement which pushes for RedHat<\/span> to continue enjoying relative independence.<\/p>\n

James M. Whitehurst<\/span>, CEO of RedHat<\/span> advised after the announcement that “Importantly, Red Hat is still Red Hat. When the transaction closes\u2026we<\/span> will be a distinct unit within IBM, and I will report directly to IBM CEO Ginni<\/span> Rometty<\/span>. Our unwavering commitment to open source innovation remains unchanged,” and went on to argue that \u201cthe independence IBM has committed to will allow Red Hat to continue building the broad ecosystem that enables customer choice and has been integral to open source\u2019s success in the enterprise.” However, partners and clients may question how much of this lies in a carefully orchestrated marketing narrative, and how long IBM will hold true to its word given experiences with previous acquisitions. And the open source community can be quite unforgiving of commercial entities moving from benefactor to owner of IP \u2013 unless they tread carefully, IBM and RedHat<\/span> may find themselves alone on the playground while all of the other open source kids play football, all because they held on to the ball for too long while they were in goal.<\/p>\n

Even so, the formal press announcement from IBM and RedHat<\/span> should settle some nerves \u2013 it advises that \u201cupon closing of the acquisition, Red Hat will join IBM’s Hybrid Cloud team as a distinct unit, preserving the independence and neutrality of Red Hat’s open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture.\u201d<\/p>\n

So that\u2019s all we know at this stage about how IBM plans to slot in $34bn worth of company in its leviathan and, frankly, unforgivingly<\/span> complex structure. Let\u2019s just hope RedHat\u2019s<\/span> reputation in the open source community isn\u2019t tarnished by selling out to a major player. Which brings us to our next point\u2026<\/span><\/p>\n

Forget about the cloud, this is all about open source<\/span><\/h1>\n

One thing should be made clear, the narrative a lot of pundits are pushing is that this is all about forging fresh weapons to take on the big cloud players \u2013 AWS<\/span>, Azure, and Google. If it is, that\u2019s a woefully misguided objective. All of the major hyperscale<\/span> firms have consistently built up assets and developed innovative cloud layers to meet the insatiable demands of the modern enterprise. RedHat<\/span> \u2013 despite its credentials in Linux and Virtualization<\/span> \u2013 isn\u2019t going to give any of the big three much pause for thought. If IBM was genuinely eyeing up targets to give them a leg-up in the cloud wars, RedHat<\/span> wouldn\u2019t be at the top of the list. And although the marketing collateral from both firms is already championing the value of the tie-up to put a fresh spin on multi<\/span>-cloud \u2013 this is far from fresh thinking in a market already packed with services and solutions.<\/p>\n

So what it\u2019s really about, is cornering the growing appetite for Open Source in the enterprise IT services market. As Paul Cormier<\/span>, President of Product and Technologies at RedHat<\/span> recently announced \u201cToday is a banner day for open source. The largest software transaction in history and it\u2019s an open source company. Let that sink in for a minute. We just made history.\u201d<\/p>\n

IBM and many of its rivals have been scrambling around to win plaudits for the most engaged or best contributor to a raft of open source projects, and with them the attraction of key talent in a competitive labor pool. IBM is no stranger to open source, it\u2019s one of the original Linux Foundation contributors \u2013 but many of its rivals are also heavily engaged \u2013 Google, for example, is rated as one of the most generous contributors to GitHub<\/span>. What this acquisition is really about is cornering off a large pool of talent, capability, and IP in the Open Source space \u2013 and with it core cloud capabilities across containerization, viurtualisation<\/span> and a raft of other capabilities that are soon to be the essential building blocks of the new enterprise IT.<\/p>\n

Bottom Line: $34bn is a steep price tag, but as enterprises look to <\/span>replatform<\/span><\/span> to make sense of digital, this could be a stroke of genius from IBM<\/span><\/p>\n

One thing we\u2019ve been tracking a lot here at HFS<\/span> is the enterprise push to replatform<\/span> to build the utopian<\/span> ideal of a touchless<\/span> IT environment. In many respects, RedHat<\/span> brings with it many of the core components to achieve this business goal \u2013 the firm has innovated for countless years in the space to be at the forefront of changes in technology that standardizes operating environments across enterprises. The firm, along with traditional IT providers like IBM have worked to help enterprises bridge the gap between their on premise assets, old IT capabilities, and the newer technologies coming to the market. Increasingly we are moving away from a world which dictates businesses need to overhaul their environments overnight, and instead into the more realistic thinking that the modern platform will be a hybrid of the old and the new. The providers that can help enterprises link these systems and technologies together, and build a layer over the top to support the stresses and strains of the modern business will capture mindshare<\/span>, and marketshare<\/span> in equal measure.<\/p>\n

So in many ways, although RedHat<\/span> comes with a steep price that will leave most financial analysts puzzled \u2013 to analysts in the Digital and IT Services space, once you get passed the price tag and the old cloud wars narrative, this deal starts to make a lot of sense. There\u2019s also the interesting inference to make that IBM has taken a decided pivot away from poster-boy IA giant Watson, to go back to its enterprise IT core and solve real challenges for real people \u2013 and in the modern world, that will always involve cloud.<\/p>\n","protected":false},"excerpt":{"rendered":"

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