Big Blue chases cloud market with US$34b Red Hat acquisition

Published on the 31/10/2018 | Written by Jonathan Cotton


IBM acquires Red Hat

IBM’s proposed acquisition of open source cloud software company Red Hat will create the world's largest open source software portfolio...

It’s the biggest software deal ever – larger than Microsoft’s US$26 billion acquisition on LinkedIn in 2016 – and expectations are high as to the potential impact IBM’s purchase of Red Hat will have for businesses using cloud.

Paying US$190 per share in cash, IBM has agreed to purchase open source company Red Hat for US$34 billion as the tech giant tries to diversify its offering and gain more traction in the subscription-based cloud market.

“This deal gives IBM a new stronghold in the cloud development platforms market.”

According to the announcement, North Carolina-based Red Hat will remain a stand-alone entity within IBM, with IBM promising it will remain committed to Red Hat’s open source ethos (Red Hat will also retain its current leadership team, headquarters and facilities).

The acquisition could be characterised as a last ditch effort by IBM to gain relevance in the cloud market. That’s likely true to some extent, however Red Hat and IBM already have a long history, and IBM’s open source credentials make the purchase a logical next step for the tech titan.

“IBM embraced Linux and open source software earlier than many tech titans of the last era,” says principal analyst at Forrester, Dave Bartoletti.

“While IBM has struggled to keep up with Amazon Web Services, Microsoft and Google in the public cloud market, this deal gives IBM a new stronghold in the cloud development platforms market.”

The combined company will have much broader open source middleware and developer tools portfolio than either company separately says Bartoletti, with the deal likely to reshape the open source and cloud platform market profoundly in the coming years.

And IBM is surely keen to transform into just such a cloud player. Having failed to secure a significant piece of the cloud pie previously, IBM is likely hoping that the merger will help them attract clients hungry for hybrid multi-cloud adoption, faster generation of cloud-native business applications, and more consistent management across cloud platforms.

That’s the plan anyway, and IBM is certainly taking the opportunity to talk a big game.

“[This deal] changes everything about the cloud market,” says Ginni Rometty, IBM Chairman, President and CEO.

“IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” Rometty says. “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 optimising every part of the business, from supply chains to sales.”

The move is a big statement from IBM that they are, in fact, a player in the hybrid cloud market and ready for new growth. How will it play out? Can IBM challenge Amazon and Microsoft’s rapidly growing cloud influence?

It’s hard to say at this point, but IBM is flush with cash, so keep your eyes peeled for yet more acquisitions by the tech megalith, and, perhaps, a spate of significant new purchases from already established competitors looking to increase their reach in the increasingly contested cloud space.

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