Last week, IBM bought Red Hat for $34 billion, in what is the largest acquisition in history dedicated solely to software, and the third largest tech acquisition of all time. This title was formerly held by Microsoft’s $26 billion acquisition of LinkedIn two years ago.
Prior to being acquired by IBM, Red Hat was primarily known for being a LINUX distribution company, and for its acquisition of open-source enterprise middleware vendor JBoss. Red Hat also made headlines two years ago for its collaborations with Eurotech on improving the Internet of Things. Red Hat did this using a strategy that brings data processing out of the cloud and into the edge, an approach that IBM intends to utilize with the acquisition.
Today, Red Hat is the biggest vendor of open-source software, and prior to acquisition, has been collaborating with IBM for 20 of its 25 years as a company.
IBM has high hopes for its big purchase. "The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," says Ginni Rometty, IBM Chairman, President and CEO. "IBM will become the world's #1 hybrid cloud provider.”
"Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs," she further states. "The next 80 percent 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."
$34 billion is a huge amount of money, all spent on open source and cloud—so is the cash worth it? The consensus across the board is that it’s a great move, with coverage from The Economist going so far as to say that the two companies together could produce an “über-cloud.”
“[Red Hat] takes free open-source software, makes some improvements, bundles it with other tools and services such as technical support, and charges a monthly subscription fee,” reads The Economist’s coverage. This is valuable to IBM, which has fallen behind in recent years on cloud-based innovation in favor of focusing on IBM Watson, an AI system that has not entirely paid off on its promise.
Along with Red Hat’s OpenShift—a program that allows data to be processed either on the edge, in the cloud, or both—the idea is that the acquisition can help IBM enter the game as a new cloud contender, specializing in hybrid cloud solutions.
“Red Hat is expected to bring three things to IBM: the world’s largest portfolio of open-source technology, their innovative hybrid cloud platform, and a vast open-source developer community,” says Forbes contributor Panos Mourdoukoutas.
But not everyone is convinced that IBM has made a good move. Yves Sukhu from Seeking Alpha argues that for the cost of Red Hat to be beneficial, the result of the acquisition has to add up to more than the sum of its parts.
“I am struggling to understand the unique value proposition offered by the combined companies...” Sukhu writes. “Specifically, the general idea that the joint technology stacks somehow radically change the ‘calculus of the cloud’ just doesn’t make sense to me.”