Big Blue dons the Red?Hat

IBM has reached an agreement to buy Red Hat for $34 billion, a more than 60% premium to Red Hat’s share price on Friday. The deal is the third-largest technology acquisition in history and the largest for a software company, surpassing the $26.2 billion Microsoft paid for LinkedIn in June 2016; it also demonstrates Big Blue’s commitment to the growth of the cloud computing market, currently dominated by Amazon, which controls more than a third of the market, followed by Microsoft, IBM, Google and Alibaba.

Amazon’s slice of the cloud computing pie has been stable for more than three years, despite a tripling of the market size in its different models in that time to an estimated $15 billion, representing growth of 51%.

The acquisition makes sense for IBM, which has spent years shedding hardware and instead developing recurring value-added services: Red Hat, one of the great success stories in the free software world, will maintain its management, with Jim Whitehurst at the helm and will be independently run within IBM’s portfolio of cloud computing services, reporting to Ginni Rometty, its Chair, CEO and President.

The idea is to position a neutral hybrid cloud product for companies that often see Amazon, Microsoft or Google’s as requiring partially proprietary pieces that hinder mobility between services. The deal will also strengthen IBM’s commitment to Linux, a trend reinforced by Microsoft’s recent acquisition of GitHub and its commitment to make all its patents open source.

As some commentators have pointed out, success for IBM may well depend in large part on Red Hat — with a less traditional management approach — providing greater agility and speed in helping companies transform digitally, as opposed to IBM desperately trying to invoice consulting hours associated with each installation of cloud computing. Big Blue’s revenue has been negative since the second quarter of 2012 and it urgently needs to come up with new products and expand its customer base, presumably using the power of its marketing to drive Red Hat’s proposals. IBM says the acquisition is about increasing revenue, not cost savings and that it hopes to become a neutral cloud computing provider, able to easily integrate any company’s products. Others see the operation as a way of helping drive a return to the enterprise software and services business that has always been its core competency, rather than its obsession with consulting and its Watson AI program that have not met business expectations.

Why would IBM spend $34 billion on a company whose products can be downloaded and used free of charge? Because the free software environment is here to stay, and because many of the companies operating in it are happy to pay Red Hat for management and maintenance services of its products, to the point of generating around $3 billion a year, a figure that could grow considerably with IBM’s support and synergies.

In general, acquisitions of leading free software companies are usually seen within the community as a cause for concern. But this is IBM, the fourth-biggest contributor to open source repositories, acquiring Red Hat, the second-largest, which should dispel any doubts about the future of Red Hat and its philosophy: between them, they have contributed much more to the development of Linux than any other organization, investing as much money as development time. Open source is now the predominant philosophy when it comes to understanding software development at all levels, including within corporate environments. The fact that the acquisition of one of the most important software companies ever is also a producer and distributor of open source software is simply further proof of this. What began as idealism is today the foundations on which more and more companies’ systems are built.

As M?rten Mickos, former long-standing MySQL’s CEO says, IBM knows that “every company with a technology strategy needs an open source strategy.” It’s been clear for years that open source as a development methodology is the way forward, and IBM believes that there are still many companies out there that need to integrate it as part of their business strategy, and that those with the best understanding of it have the best chance to gain competitive advantages.

(En espa?ol, aquí)

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