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Red Hat at $34B?

IBM announced yesterday its plan to acquire Red Hat at a whopping $34B price, it’s biggest in its 107 year history. When I read about it in the Wall Street Journal yesterday, my first reaction was “how does it make sense?”. IBM clearly wants to move ahead in the cloudsphere to face tough competition from Amazon, Microsoft, and Google. It’s acquisition of Soft Layer has not yielded much gain so far. IBM CEO Ms. Rometty is betting big to inject some growth from the fast growing enterprise cloud market.

Red Hat makes open-source software for businesses. It’s one of the largest distributors of Linux which is often used to power corporate data centers. It’s best known for Red Hat Enterprise Linux, a specialized version of the operating system. While downloading RHEL is free, Red Hat charges for software enhancements and the technical support that corporations need, such as maintenance, support and installation.

So how does this acquisition make sense? IBM plans to use Red Hat’s software to bridge those Linux-powered corporate data centers with the major cloud computing platforms in a model called “hybrid cloud.” Customers running Red Hat software on their servers would get an easy path to move some or all of their applications to the cloud, at their own pace. In addition to its own IBM Cloud, IBM also plans to maintain and nurture Red Hat’s partnerships with other major cloud providers like AWS, Azure, Google Cloud, and Alibaba. To that end, IBM plans to run Red Hat as an independent subsidiary, so as to maintain its neutrality among cloud platforms.

Analysts expect this move to have wide-reaching ramifications for the cloud landscape, and it would give IBM an edge to keep up with key players in the cloud computing market, such as Amazon, Microsoft and Google. In other words, this acquisition keeps IBM relevant, even as its own cloud lags behind Amazon’s and Microsoft’s.

The open source community is skeptical as it fears a culture shift from free-wheeling development to a more restrictive world. But IBM has said it won’t stop Red Hat from contributing to open-source projects or from managing the popular projects it already maintains, like the CentOS operating system or the Ansible IT automation tool.

Big acquisitions are tricky and IBM’s track record has not been that great. But let us hope IBM will gain significantly as a cloud player with this acquisition.

from: Jnan Dash’s Weblog
via Jnan Dash

Source: Red Hat at $34B? Via Business Advice.

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