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IBM swallows Red Hat

IBM to buy open source software specialist for $34 billion.

Paul Cormier, Red Hat

IBM is set to acquire open source company Red Hat for $34 billion, the companies announced on Monday.

They will now be able to accelerate hybrid multi-cloud adoption with consistent cloud management. Red Hat will be folded into IBM’s Hybrid Cloud team as a ‘distinct unit’, said a Red Hat statement.

It said its independence and neutrality in open source development would be preserved, as well as its ‘unique development culture’.

IBM will acquire all of the issued and outstanding common shares of Red Hat for $190 per share in cash.

Ginni Rometty, IBM chairperson, president and CEO, said the acquisition is a ‘game changer’.

“It changes everything about the cloud market.  IBM will become the world's number one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

'The next chapter of cloud'

“Most companies today are only 20% along their cloud journey, renting compute power to cut costs,” she said. “The next 80% 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 optimizing every part of the business, from supply chains to sales.”

Jim Whitehurst, Red Hat president and CEO, said joining forces with IBM would provide it with a greater level of scale and resources to accelerate the impact of open source.

Red Hat and its roughly 12 000 employees will continue to be led by Whitehurst and his management team. Whitehurst will join IBM's senior management team and report to Rometty.

Paul Cormier, Red Hat president, products and technologies, was instrumental in bringing the company’s product to the enterprise market.

He told The Margin earlier this year that when he had joined the company 17 years ago, it was making about $50 million in revenue, and losing about $200 million a year.

“One of first enterprise places we cracked was Wall Street. We won Wall Street with RHEL (Red Hat Enterprise Linux) initially. And then a few years down the road they all started going to VMware. I said to a few people ‘I don’t understand this. You all went to Linux, and got out of the model where one company is telling you what feature you can have, and when you can have it, and now you’re going to VMware. Why?’ And the answer I got was ‘Yeah, but it works’.

Solving a problem

Cormier said in the enterprise software market, the first priority was that the product solved a problem.

He said while enterprises realised that open source was valuable, ‘it’s gravy’.

“They like open, they don’t want to be locked in, but the first priority is solving a problem.”

“If RHEL hadn’t become an enterprise product … if it didn’t have the right availability, security, and reliability, they wouldn’t have gone (for it). It had to have all that, and the fact that it was open was just great.”

“It’s all around the hybrid cloud. Amazon has been around for 10 years. In the first five or six years of Amazon, the message was that every application is going to the public cloud tomorrow. And now it’s a hybrid cloud. There are applications that run on bare metal and applications that run on virtual machines. There’s going to private clouds, and containers. And now there are multiple public clouds. It’s complex and distributed, and enterprises don’t want to have an island for the apps in each of those. They want to have one operating environment across all of those footprints.

“We have been building our entire product portfolio around that model for six or so years. Everything in the portfolio; we look at through the lens of how is this going to make hybrid more seamless?”

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