IBM shocked many this past week when it announced plans to acquire Red Hat for $34 billion. And when I say “shocked” I mean that every part of that sentence was shocking. From the parties involved to the amount paid. All shocking.
It’s not that multi-billion-dollar deals are somehow unique. But this was IBM – the epitome of the old-school hardware world – throwing $34 billion at Red Hat – the beacon of open source software.
I guess to an extent it makes sense in that neither company’s core focus infringes on the other, so a combination spares any sensitive toes. But, it’s also obvious that the entire industry is moving from where IBM was to where Red Hat is.
Analysts and pundits took the news and ran. And by that I mean that no one took this news and just stood there with no opinion. No, they took this news and ran to one extreme or another with an opinion.
Those on the developer side of the ledger bemoaned what was to become of Red Hat, citing founded and unfounded histories of IBM mangling past acquisitions. However, those outside of that deep space seemed more pragmatic on the deal.
Stephen O’Grady, co-founder and analyst at Redmonk, wrote one of the more in-depth perspectives and released an exhaustive tome on the deal. It includes some perspective on just how unique Red Hat is in the market in terms of making a lot of money on open source.
Management from both IBM and Red Hat spent considerable time attempting to tamp down concerns over what this deal would do for Red Hat’s open source focus. This includes stating that it will operate as a separate entity inside of IBM, that all of Red Hat’s current open source and customer commitments would remain in place, and that IBM would not gain any advantage over rivals in terms of Red Hat’s technology.
In listening to these claims, I was quickly reminded of a similar tone struck by Microsoft when it announced its $7.5 billion acquisition of GitHub earlier this year. That deal also generated considerable consternation from the open source community that viewed Microsoft as acquiring direct access to GitHub’s millions of open source developers.
Microsoft just recently closed on that purchase and so far it seems that those shouting the world would end were perhaps a bit off. But, it’s also very early in the process, and it would be foolish to think that the deal has had no impact on developers in the GitHub ecosystem.
In terms of this latest deal, I would proffer that IBM should be given some credit for its support of the open source space. The company might often be lumped in with hardware and proprietary software world, but it has also been pretty aggressive in supporting open source platforms.
I have over the years also seen plenty of multi-billion-dollar deals in the software and telecom space and most of those never quite go as planned. Would Red Hat have been able to remain an independent and profitable business going forward? The company’s management didn’t seem to think so. Or at least the $34 billion offer was enough to convince them that they couldn’t.
Obviously, at this point we will never know. But, from my selfish point of view, the deal is a win-win.
If IBM does what it says it’s going to do with the assets, then it becomes a more formidable competitor against Amazon Web Services (AWS) and Microsoft Azure. And even better, it forces Google and Oracle to step up their games. This could lead to any one of those four pursing another acquisition, with plenty of options on the table – Docker Inc., Rancher Labs, SUSE, Canonical, etc.
But, if IBM fumbles the ball, then that becomes an almost more compelling story about how and why. And it probably also further curses the notion that the old and new worlds can ever truly be combined.
Either way, the deal has ramped up the competitive pressure within the cloud computing and open source world. And that makes it more fun.