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Why IBM Acquisition of Red Hat for $34 Billion Is a Win-Win for Both!

GlobalData Analysts Provide Insights Following the announcement on Sunday 28 October 2018 that IBM will acquire US-based open source software solutions provider, Red Hat for approximately $34 Billion to bolster its hybrid cloud capabilities.

Analysts at GlobalData, a leading Data and Analytics company, offer their view on the blockbuster deal.

The Acquisition Will Give IBM a Solid Bridge Between Its Existing On-Premise Hardware and Its Global Cloud Platform

Chris Drake, Principal Analyst for Data Center Technology at GlobalData, comments,

“Although IBM and Red Hat will be strongly positioned to address data portability and security issues, and accelerate hybrid multi-cloud adoption, there are questions about how they plan to do this and how this transaction will impact IBM’s main hybrid cloud play—IBM Cloud Private—which they announced last year.

How this Red Hat transaction will position IBM as ‘the world’s #1 hybrid cloud provider’ in an emerging $1 Trillion growth market?

IBM has expressed plans to continue building and enhancing Red Hat partnerships, including those with major cloud providers such as Amazon Web Services, Microsoft, Oracle, CISCO, Google, and Alibaba. Does this mean that IBM will promote equal access to these additional public clouds as part of its Cloud Private offering and, if so, how will it do this?

“There is also a lot of speculation as to how this transaction will position IBM as ‘the world’s #1 hybrid cloud provider’ in an emerging $1 Trillion growth market. However, the Hybrid Cloud is a fast-changing market that is being targeted by a growing number of major players. In addition, several large infrastructure vendors, including Dell EMC, HPE, Huawei and CISCO have more than one hybrid cloud offering.”

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“Red Hat has been reporting strong hybrid cloud growth based on its OpenStack and OpenShift solutions. It’s unlikely that IBM would want to disrupt this growth and may, therefore, use the acquisition to develop a more differentiated range of hybrid cloud solutions.”

Despite all these questions, there are plenty of benefits for the two companies, particularly around access to one another’s existing customers.

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Is There A New ‘Unrealized’ New Opportunity?

Brad Shimmin, Service Director for Technology and Software at GlobalData, commented,

“The acquisition will give IBM a solid bridge between its existing on-premise hardware and its global cloud platform. However, the long-term and most profound ramifications will be felt within the Linux and broader open source communities.”

“Hopefully, IBM will allow Red Hat engineers to continue prioritizing upstream contributions, regardless of whether or not those are in the best interest of IBM’s bottom line. If not, the driving force Fedora and Red Hat Enterprise Linux (RHEL) will very likely shift toward rival distributions like Debian, CentOS, OpenSUSE, Ubunto, Gentoo, or perhaps some as yet unrealized new opportunity.”

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Application Platform Providers like Red Hat Having an Advantage Here Carry a Lot of Weight Among Enterprises

Charlotte Dunlap, Principal Analyst for Application Platforms at GlobalData, commented,

“IBM would do well to gain access to RHEL customers and Red Hat’s greater loyal developer community. In recent years IBM and Oracle have made inroads in open-source software (OSS) by adopting technology from OpenStack to Cloud Foundry further up the stack, but no one’s got the following of the developer community like Red Hat for its initial commitment and business model around OSS.”

“Once these hybrid cloud setups are in play and enterprises move into the digital transformation phase, which converts their IT and data centers into modern app development/deployment architectures, operations teams (DevOps) are pinning a lot of hopes on OSS technologies such as Kubernetes (container orchestration), Istio (microservices) and Knative (serverless) to ease the complexity of moving app workloads into production. Application platforms providers like Red Hat having an advantage here carry a lot of weight among enterprises.”

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