IBM Makes $34B Bet with Red Hat

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IBM plans to purchase Red Hat in a $34 billion deal. Big Blue says its combination with the open source pioneer will establish it as the world’s No. 1 hybrid cloud provider.

“The acquisition of Red Hat is a game-changer,” says IBM Chairman, President, and CEO Ginni Rometty. “It changes everything about the cloud market.”

Red Hat and IBM are long-time partners. In May they announced plans to expand their joint hybrid cloud acceleration efforts. That tied in with IBM’s efforts to re-engineer its entire software portfolio with containers.

At that time, Arvind Krishna, senior vice president for IBM Hybrid Cloud, said: “With IBM’s recent move to containerize its middleware, today’s landmark partnership between IBM and Red Hat provides customers with more choice and flexibility. Our common vision for hybrid cloud using container architectures allows millions of enterprises – from banks, to airlines, to government organizations - to access leading technology from both companies without having to choose between public and private cloud.”

Today Krishna said IBM’s primary motivator for the acquisition of Red Hat is to win in hybrid cloud, and to win on the basis of open source technology, and to win based on value. And he noted that containers and Kubernetes (a technology that automates containers) are central to IBM’s cloud strategy.

And he and Paul Cormier, president of products and technologies at Red Hat, said that these technologies are as impactful today as the arrival of TCP/IP and web services were in their time. Businesses like containers because they allow for portability, continuous delivery, and expedited time to market.

IBM’s cloud infrastructure services market share was around 8 percent, Synergy Research Group said in July. The research firm said that was due in large part to “its strong leadership in hosted private cloud services.” IBM has been active in the open source arena as well. And, of course, IBM is a leader in artificial intelligence technology with its Watson solution and in blockchain technology. Meanwhile, IBM says, Red Hat is “one of the most highly-prized, premium software companies in the IT industry” and a leader in open source, Linux, and Kubernetes.

With Red Hat as part of the IBM organization, Big Blue says it will be better positioned to move on new opportunities in the cloud business market, which still has significant runway.

“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” Rometty said. “The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.”

Krishna adds that IBM has no intention to change anything Red Hat is doing and that the company expects to keep the brand alive. “Red Hat is a powerful brand…and brands are really hard to establish,” he added. “Red Hat is going to keep going for as long as I can foresee.”




Edited by Maurice Nagle

Executive Editor, TMC

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