IBM to Acquire Red Hat for $34 Billion-Wow – Forbes Blog by John Webster

By , Wednesday, October 31st 2018

Categories: Analyst Blogs

IBM has announced its widely unexpected intention to acquire Red Hat. For me and others I’ve spoken to, this is a stunning event that represents more than the $34B bet that IBM just placed on cloud and open source. But don’t take that perception on my word alone. IBM CEO Ginni Rometty used these words on the financial analyst call the morning after the announcement:

“This is a game changer.”

“It’s about resetting the cloud landscape.”

“We will be the number 1 leader in hybrid cloud.”

“We have been building our business for this moment.”

“It will lift all of IBM.”


Lou Gerstner’s outsider perception of IBM was of a company that, early on, had built its business selling computing as a product as opposed to computers but along the way had lost that core vision. His contribution was IBM’s hugely successful global services business that, once again, sold computing to the enterprise.

When CEO Rometty says that IBM has been building its business for the moment when it acquires a premier open source software company that will lift all of IBM, one could rightfully conclude that she has a new vision for the company’s future. But will paying the equivalent of 1/5th of IBM’s valuation on Red Hat’s leadership in Linux, containers and open source application development software lay the foundation for another IBM transformation?


The IBM acquisition of Red Hat can be compared to EMC/VMware. EMC bought VMware for a song (about $350M) because it saw the huge potential in x86 infrastructure virtualization better than anyone else at the time, including IBM who invented the concept of virtualization on its mainframes.  Container virtualization is now preferred by cloud-native application developers over VMware VMs for simplicity, portability and lower cost. Containers are more favored for cloud-native application development and Red Hat is at the vanguard of the enterprise containerization movement with OpenShift (containers plus Kubernetes). Red Hat OpenShift is now the premier enterprise container platform and IBM owns it. However, OpenShift is deeply rooted in open source and that could present problems.

Open Source

Open Source is a way to develop technology without building-in proprietary limitations. But it is also a business proposition—a way to present and consume technology without proprietary limitations. IBM historically embraced open computing technologies. It played a significant role in making Linux an enterprise standard operating system. And it continues active participation in a number of open source communities. However, the open source movement was also founded on the hope of freeing computing from the hegemony of large, dominant vendors with proprietary business practices. Red Hat’s customers and business partners are equally cognizant of that aspect of open source and will look to see if IBM will uphold what Red Hat has called the open source way—delivering products and services using an open and collaborative business model.

An Inflection Point

Ginni Rometty called the Red Hat acquisition “an inflection point.” I agree. In fact, I see this acquisition as a watershed moment in enterprise computing history. The same IBM that invented the glass house now pays a fifth of its value for a company that owes its origins to open source revolutionaries. It does so in order to further transform itself in the direction that enterprise IT is now moving. And $34B says that IBM must be reasonably sure Red Hat will get them there.

But what does this acquisition say about Red Hat and open source in general? With a strong positions in the ascendency of containers, cloud computing and cloud-native developers, Red Hat executives ultimately decided that IBM’s offering price was worth more than the opportunity before them.

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