IBM is opening a new cloud frontline with its buy of Red Hat Software. The USD 34 billion deal will give Big Blue the most prominent open source portfolio, while the company promises to retain Red Hat’s strategy and partner commitment.
According to reports, Red Hat will become an IBM unit. Both companies are no strangers and collaborated on various initiatives before. The acquisition also offers a chance for both companies to cross-pollinate talent, especially in the cloud space.
“IBM is also a major contributor to the open source community, and they've been vocal in their messaging around the deal that Red Hat's go to market and partnerships don't change," added Dennis Smith, vice president, Gartner.
While the size of the deal and the open source play grabbed headlines, the hidden storyline is all about the ongoing cloud war. The buy is essentially about catching up with Amazon, Google, and Microsoft who seem to be crowding out IBM by building ecosystems around their cloud platforms.
“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,” said Dave Bartoletti, vice president and principal analyst, Forrester.
On paper, the combination makes sense technology wise. “The combined company has a leading Kubernetes and container-based cloud-native development platform, and a much broader open source middleware and developer tools portfolio than either company separately. While any acquisition of this size will take time to play out, the combined company will be sure to reshape the open source and cloud platforms market for years to come,” Bartoletti added.
Forrester noted that the deal gives IBM the opportunity to build their rival ecosystem to challenge the cloud platform giants.
“As companies are going cloud-native with a hybrid strategy adopting cloud offerings from different vendors, it’s not very easy to keep out competitors in this way. I would say it gives IBM more opportunities to expand its partnership ecosystem, especially in the open-source world,” said Charlie Dai, principal analyst, Forrester.
However, analysts remained mixed on how well the deal will help IBM seriously compete with the cloud platform giants.
"[IBM has] been playing catch up in the cloud for a while and needed to do something dramatic/bold as part of their strategy. They seem focused on helping customers manage the transition of the majority of their application assets to the cloud. They see Red Hat as a piece that gives them the ability to help clients modernize and deploy to different cloud platforms. They continually stress hybrid and multicloud as the motivation for the deal,” said Dennis Gaughan, vice president, Gartner.
What is certain is that CDOs and digital leaders will benefit from the new combined company.
“This acquisition is really targeted at the traditional enterprise customer – IBM’s sweet spot install base and helping those customers with their cloud migrations. This has product and service revenue implications which is why IBM made the deal,” said Gartner’s Gaughan.
“This buy will provide digital leaders access to much broader and competitive offerings, such as the public cloud development platform of IBM, as well as the leading enterprise container platforms and combined middleware and developer tools from both sides. This will better help enterprises for their digital transformation in a hybrid world,” Dai added.
However, many questions remain -- especially with the overlap in product portfolios and culture.
“While they emphasized during the investor call that there is no overlap between the portfolios, there is some. More clarity for customers on product roadmaps will be essential. There is also the question of the merging of cultures with any acquisition, and it remains to be seen how that will go,” said Gartner’s Smith.
Will we see IBM redrawing their cloud roadmap with Red Hat?
“How to build a practical product roadmap with the right messaging to the market will be critical for IBM to move forward,” said Forrester’s Dai.