Yesterday, IBM announced its intention to purchase Red Hat for $34B. Assuming a successful transaction, this acquisition blends hybrid cloud and open source synergies:

  • Both companies target hybrid cloud from different angles; Red Hat provides a compelling middleware environment with OpenShift, while IBM supports enterprise customers with monolithic and even mainframe support in its cloud offering.
  • Both companies have a long track record of creating and contributing to OSS projects, with Red Hat in particular being the most successful Linux-driven company ever.

The Acquisition Gives Both Companies Stronger Play In Hybrid Cloud And Development

This announcement follows Microsoft’s $7.5 billion acquisition of GitHub. While Microsoft purchased GitHub to foster open source engagement on Azure, IBM has struggled to keep up with Amazon, Microsoft, and Google in the public cloud market. However, in Forrester’s recent evaluations of public cloud development-only platforms and enterprise container platforms, both IBM and Red Hat performed very well, respectively. With a Red Hat acquisition, IBM would have a leading Kubernetes and container-based cloud-native development platform and a much broader open source middleware and developer tools portfolio than either company would own separately. IBM would effectively gain a stronghold in the cloud development platform market.

Companies are building their future on the cloud using open source software; driving revenue from OSS is a key survival skill for IBM, as much as any other software company. $34 billion is a lot to spend — almost 12x Red Hat’s revenues in 2017. This acquisition seems ripe with overlap and redundancy. That said, Red Hat knows how to drive revenue out of open source better than anyone. By injecting that DNA into the cloud, strategy, and sales organization, it gives IBM a much-needed boost.

What It Means

What does it mean for you if this deal goes through? If you are an IBM shop, you will have greater options for your application portfolio, as well as a bevy of open source infrastructure-as-code technologies to choose from. If you’re a Red Hat shop, you have IBM’s breadth of services to support enterprise-scale applications; beware of potential impact to sales cycles and support. Customers of both companies will need to watch for the potential sunsetting of redundant services (such as some of IBM’s Kubernetes services). Regardless, the resulting sum should be greater than its parts.