[Editor’s Note: This guest post is by Blair Hanley Frank, principal analyst at global technology research and advisory firm ISG.]
IBM’s blockbuster acquisition of Red Hat for $34 billion is a big deal for both Big Blue and the entire enterprise tech market. The deal will provide IBM with technology it can use to better support customers’ use of hybrid cloud operating models, while Red Hat’s products get improved go-to-market support through IBM’s enterprise sales and service expertise.
The deal also helps IBM hone its story about how it supports customers’ hybrid cloud ambitions. Red Hat’s products are designed to provide a platform for enterprises to build upon, whether on premises or in a public cloud provider’s environment. Tools like the OpenShift container platform can bring cloud-like performance to on-prem environments and support a company’s transition to modern application development patterns.
PREVIOUSLY: IBM’s $34 billion acquisition of Red Hat a bet that cloud holdouts want old-school partners
ISG expects 35 percent of all enterprise workloads will go to the public cloud by 2020, which means many organizations will operate under a hybrid model for the foreseeable future. A developer platform that supports a hybrid model is critical to a company’s success.
The key question for enterprises going forward is: how independent will Red Hat remain under its new ownership? The open source technology company’s independence has been one of its greatest strengths in the cloud era, allowing it to act as a third-party platform that helps customers avoid lock in with cloud providers and better enable hybrid technology deployments. Joining IBM complicates that position, since Big Blue has its own cloud platform.
(It’s worth noting here that IBM offered to pay $190 per share, which was trading at roughly $120 per share prior to the announcement. Apparently, this was an offer Red Hat could not refuse.)
IBM promised that it will allow CEO Jim Whitehurst to continue running Red Hat as part of the tech titan’s Hybrid Cloud business. But it’s unclear how much independence Red Hat will have in the long run and what sort of latitude the business will have under new ownership. Here are some of the biggest questions enterprises should consider as this deal plays out in the coming years.
Where does IBM see itself as a cloud provider?
With this deal, IBM positioned itself as an “authentic multi-cloud provider,” and prioritized making Red Hat technology available across many environments. But if IBM prioritizes its own cloud offerings over that of other providers, enterprises that depend significantly on Red Hat tooling but don’t want to buy into the IBM ecosystem may find themselves in a pickle.
However, IBM’s greatest opportunity in this deal is to position itself as one of the leading companies to support enterprises as they move to a hybrid, multi-cloud architecture. While IBM would naturally support use of its cloud services, it would be well served to meet customers where they are and serve as the bridge between multiple environments, including private datacenters and the public cloud.
What happens to Red Hat’s open source communities and participation?
Red Hat is a critical participant in the open source ecosystem and provides support to several key projects including Linux, Kubernetes, Java and Ansible. The company encourages its employees to participate in open source communities and take time to contribute to projects – even if they’re not owned by Red Hat.
IBM participates in the open source ecosystem through employee contributions and projects of its own, but its support is not as extensive as what Red Hat offers. How much that changes could have significant consequences for a wide variety of critical projects that underpin much of the modern technology ecosystem.
In its press release announcing the deal, IBM committed to maintaining Red Hat’s existing open source work, but – as with most things – the devil will be in the details.
How will other providers react to Red Hat’s acquisition?
While I don’t expect cloud providers to be openly hostile to Red Hat following the acquisition, it’s possible they will opt to minimize, limit or reduce future pursuit of partnerships with the organization as a result. That, in turn, would hurt the enterprises that rely on using its technologies in non-IBM environments.
However, the enterprise computing market has increasingly shifted toward partnership and collaboration between companies that compete with one another for the benefit of their joint customers. In that spirit, it would make sense for other providers to keep working with Red Hat – and by extension, IBM – even through the acquisition.
All told, this is a massive strategic move for both firms, and it has the potential to transform the enterprise cloud and open source markets. Enterprises should expect IBM to make some interesting future moves around its hybrid and multi-cloud capabilities that make the company more competitive with others in the market.