Why Is IBM Acquiring Red Hat?

November 6, 2018

Why Is IBM Acquiring Red Hat?

By Jean S. Bozman

IBM sees Red Hat as a catalyst, a company that will fuel faster IBM revenue growth in hybrid cloud – and contribute to IBM’s overall top-line revenue.

As a Red Hat business partner, IBM already had access to Red Hat technologies; Red Hat Enterprise Linux (RHEL), OpenShift containers, JBoss middleware and Kubernetes orchestration tools. But once IBM’s acquisition of Red Hat (LINK) is completed by 2H19, the two companies will be able to drive new solutions: 

  • Hybrid-cloud-centric design. We believe that IBM and Red Hat will be able to engineer open systems together, sharing intellectual property to support enterprise workload migrations in new ways. The two companies have already worked together in the context of open-source communities, including initiatives for Linux systems, Java, and Kubernetes orchestration.
  • Improving hybrid-cloud management and security. IBM’s advanced IBM Storage software for data discovery, data optimization, and storage management will be additive to Red Hat’s strengths in containers and Kubernetes. IBM provides security software and hardware-enforced security. IBM is also working on container security for end-to-end solutions in hybrid clouds and multi-cloud deployment.
  • Competing with other hybrid-cloud providers. IBM and Red Hat will be able to market their combined software stack as open, rather than proprietary, avoiding vendor lock-in. The plan is to develop open-source software layers that will be ready for deployment, reducing customers’ DevOps time and labor, translating into reduced Opex.
  • Driving hardware sales for hybrid cloud. For some customer migrations to hybrid cloud, IBM’s hardware will also be part of IBM’s overall offer. We expect that there will be additive sales. Examples include IBM Storage all-flash systems, IBM Z systems with hardware-enforced security, and AI optimized for IBM Power systems.

 

IBM’s Strategy

IBM’s strategy is to help customers to continue their hybrid cloud journey. Many customers have begun their hybrid cloud journey, but have hesitated to migrate mission-critical applications to hybrid cloud. Among their worries about migrating workloads to hybrid cloud: that mission-critical production data would be compromised or insecure; that performance would suffer; and that service license agreements (SLAs) for availability would not be met.

IBM plans to tell these customers that its product portfolio can assure a smooth and safe transition to hybrid cloud by supplying security software, secure hardware systems, along with comprehensive management software and IBM services. IBM expects that approach will be a differentiator for customer engagement, and for competition with other hybrid cloud solutions providers.

 

Red Hat’s Role

Maintaining the boundaries around the Red Hat business unit (BU) within $80 billion IBM will be key to maintaining Red Hat’s open-source ecosystem – avoiding a perception that the software stack would become proprietary. The open-source stack also supports customers’ multi-cloud deployments, tapping different clouds for different reasons. That is expected to become an important element of IBM’s cloud-computing competition with Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform.

It took 25 years for Red Hat to grow its organization to $3 billion in revenue. Red Hat now expects that it will be able to scale its business, gaining access to IBM’s worldwide sales-force, marketing and funding. Red Hat will gain access to a sprawling array of IBM markets worldwide (e.g. systems, storage, software, services), a large global sales force, and 20+ vertical markets addressed by IBM software and services. Until now, Red Hat had focused most closely on just two verticals: telecommunications and financial services.

 

Presenting Options for Open-Source Hybrid Clouds

In a call with industry analysts, IBM said in that it does not plan to rationalize the two companies’ product roadmaps – to keep or discard specific products. IBM’s statement was, perhaps, surprising to some, because convergence of software offerings is often expected whenever a large company acquires a smaller one that has an overlapping product-set. However, in the context of open-source offerings, IBM recognizes that it cannot be prescriptive in designing open-source solutions, given customers’ previous choices and deployments.

It is vital to the success of the acquisition that both IBM and Red Hat communicate – right from the start – that they will not push customers to choose between their product sets. For example, IBM’s support for other Linux distributions, other container types (e.g., OpenShift, Docker) and third-party security solutions will continue.

IBM expects that going forward with broad choice of products and services will be a factor that helps customers choose IBM as their go-to-hybrid-cloud partner.

 

 

 

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About Jean Bozman

Jean is a senior industry analyst focusing her research on server technology, storage technology, database software and the emerging market for Software Defined Infrastructure (SDI).