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DevOpsGroup Blog How will IBM’s acquisition of Red Hat impact the cloud sector?

How will IBM’s acquisition of Red Hat impact the cloud sector?

IBM has become the latest technology giant to make a landmark investment in the open-source software arena, following Microsoft’s $7.5 billion takeover of GitHub and Salesforce’s $6.5 billion acquisition of MuleSoft.

Last week, the firm inked a deal to acquire Red Hat for $34 billion, its largest acquisition to date and the third largest in US tech history. Once it has been completed, Red Hat will continue to operate independently but as a unit of IBM’s Hybrid Cloud division. Its boss, Jim Whitehurst, will become a member of IBM’s leadership team and report directly to CEO Ginni Rometty.

Rometty described the deal as a “game-changer” for the cloud sector and said IBM has the potential to become the world’s leading hybrid cloud provider. According to Forbes, IBM currently trails behind fierce competitors AWS and Microsoft. Will this deal change that?

Our Chief Product Officer Steve Thair, Lead CloudOps Engineer Ed Dipple, and Lead Engineer Jonathan Wright discuss IBM’s motivations for acquiring Red Hat at such a massive price tag and the impact it will have on the tech sector.

Cloud wars

To Ed Dipple, this is a moment of reckoning for IBM who want to be top dog in the cloud market. “Given the amount of money IBM has spent, it’s clearly looking to kickstart its cloud offering. The firm has struggled to compete with key players such as AWS and Microsoft Azure. I’d say the acquisition will definitely help IBM to make a start in this race,” he explains.

“Over the past few years, it’s been lagging behind. IBM has been very niche and only looking for a smaller chunk of enterprise customers who actually want a hybrid model. Meanwhile, Microsoft and AWS offer a lot more freedom in the cloud.”

Just like Microsoft’s agreement with GitHub, Dipple expects IBM to take a hands-off approach. But he says there’ll be improvements across IBM’s product range, giving it a bigger competitive advantage.

He continues: “My view is that the IBM’s Bluemix DevOps tooling will become a lot better, especially if it’s built into Red Hat’s Ansible offering. However, the products that everybody loves from Red Hat will probably stay the same – but with improved support from IBM.”

“I’m a big fan of how Microsoft acquired GitHub. I don’t think it’s trying to scare away its loyal user base. Larger organisations can cause a bit of a ripple in the open-source community. I think IBM’s takeover of Red Hat will have positive impact.”

Reaching new customers

Jonathan Wright, Lead Engineer, agrees that the deal will allow IBM to expand its cloud capabilities. “The bottom line is, the company hasn’t been growing its cloud services and isn’t as popular as the other providers. By acquiring RedHat, it wants to show growth and direction in the cloud,” he says.

“Red Hat is strongly associated with the cloud. Through its respected operating system distribution as well as OpenShift, it helps run a substantial amount of enterprise workloads, especially because it comes with support packages. This is an opportunity for IBM to gain significant traction in the market and access to new customers.”

But Wright admits that he was surprised to hear about the acquisition, particularly the amount IBM has agreed to pay for Red Hat. “IBM is clearly serious about growing its cloud offering. The deal also shows the power of open source,” he adds.

“Many of the tools and applications that are the biggest drivers to enabling cloud adoption and scaling workloads are released under an open license, so working directly with them can provide significant benefits to cloud service providers in such a competitive market.”

Open source is winning

Steve Thair, DevOpsGroup Co-Founder and CPO, says IBM has clearly acquired RedHat to bolster its cloud offering. “Red Hat has an amazing range of technology, great people, and a strong community position with its open source projects. As it tries to become a modern cloud services company, IBM is seeking that injection of fresh people, fresh ideas, and fresh technology,” he explains.

“As was the case with Microsoft’s acquisition of GitHub, the tech community hopes that mostly nothing will happen when the deal is complete. It’s likely that Red Hat will keep doing great things but with the financial, marketing, and sales muscle of IBM.”

He says the rise of high-profile acquisitions like Red Hat and GitHub shows that open source software is the way forward. “I don’t think there’s a company in the FTSE 250 or Fortune 500 that isn’t using open-source technology in their organisation. You need it in order to succeed today.

“Increasingly, the jewel in the crown is the community around these open source products. They consist of incredibly productive developers who are passionate about what they do and collaborate with each other to drive technology forward. And interacting with them is just as important as leveraging the tools. Companies are beginning to see that.”

It’s difficult to predict how the acquisition will unfold, given the fact the news was only recently announced. But if there’s one thing certain, IBM is serious about increasing its position in the ever-evolving cloud market. This is also an exciting time for the open source community.

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