If you’re a Red Hat developer, your ears must have been burning earlier today. That’s because IBM CEO Ginni Rometty was telling investors that Big Blue was coming to get you now that it is buying enterprise Linux powerhouse Red Hat.
Whether you’ll be in when IBM calls may be another matter. The deal itself is not expected to close until the second half of 2019, which if not exactly a lifetime in today’s software market, is certainly long enough for many careers and technology strategies to change course, if not come to a grinding half altogether.
Rometty, and Red Hat CEO Jim Whitehurst, surprised both the financial markets and technologists on Sunday when news broke that IBM will pay $34bn for Red Hat, a company with total annual revenues of $2.9bn, and whose market capitalisation was $20bn just before the deal.
Tech takeovers are notorious for trashing shareholder value and leaving great technologies to wither on the vine.
This one will, of course, be different. Whitehurst told an analyst call detailing the deal that it was “truly a fantastic outcome for shareholders.” Red Hat’s shareholders that is.
So what is IBM getting from the deal? IBM’s Rometty was unequivocal, saying that the deal will make it the “undisputed number one in hybrid cloud”, a market she said would be worth $1tr by 2020. She used the phrase “undisputed” more than once, and her mic picked up the sound of her thumping the table to drive the point home.
It’s IBM v…everyone and no-one
Rometty and other IBM execs expanded on the earlier bald release announcing the deal, saying that the next chapter of the cloud was about hybrid cloud. While “closed” clouds had been sufficient for the first chapter, and productivity applications, 80 per cent of business workloads had not been moved to the cloud.
IBM’s hybrid cloud chief Arvind Krishna expanded on this, saying hybrid depended on containers and Kubernetes, and demanded both innovation and certified secure stacks. Only then would enterprises begin migrating its core back end apps and data (the sort that run on mainframes perhaps) to the the cloud – or rather multiple clouds. This would help Watson, AI and analytics, Rometty said, in something of an aside.
(Some, who clearly hadn’t been paying attention, might have thought IBM has already staked its future on AI and analytics. Others we spoke to were convinced that IBM had already claimed it was the number one hybrid cloud operator – otherwise why had it spend all that money on Softlayer.)
While IBM brought its enterprise cloud and AI background to the deal, Red Hat, the execs said, brings “foundational technology for hybrid computing” including a common platform across multiple environments and “leadership” in container management – and was cloud agnostic and committed to open standards.
So why wouldn’t Red Hat continue to do what it does, expanding its range of open source offerings, from OS to middleware, to automation and insights, while making some eye watering margins on its subscription products, even as it contributes to the greater open source good, and works with all the major players?
Simply because, according to both Rometty and Whitehurst, it faced a challenge scaling up its business to help its customers. IBM with its own cloud, its services operations, and sheer scale, solves this problem for Red Hat. And, it would hope, for the developers and architects who rely on its technology.
Rometty added, “We’ve built our investments to keep scaling him.” By which we think she meant Red Hat in general, not just Whitehurst.
It’s all about scale
And as it scales Red Hat, IBM will seek to differentiate the combined operation from what it describes as its “proprietary” rivals: “This cloud battle is going to be about open versus proprietary.”
Further, Whitehurst said, “This is about providing choice, and ensuring customers are not locked in.” Locked in to who? Well, presumably Amazon, MIcrosoft Azure, Google…and some others. All of whom are also key partners for Red Hat, highlighting its unique, and rather delicate position.
One analyst described Red Hat as the Switzerland of open source – neutral and highly profitable.
Rometty said IBM was absolutely committed to ensuring this remained the case. Though there were cross selling opportunities which IBM would want to exploit, she added.
But, “Number one is the people of Red Hat…we’ve got to preserve absolutely this Switzerland [status].”
By coincidence, the population of Switzerland is slightly North of 8 million, roughly the same as Red Hat’s worldwide developer community.
Rometty also said “We now have access to the world’s largest developer community.”
Rometty consistently drove home the point that culture was crucial to the success of the takeover, saying said IBM would maintain all Red hat’s current locations. She also said that the only successful takeover of a services company was IBM”s of PWC Consutling, and that she’d overseen that deal.
At the same time, Whitehurst insisted that despite the next battleground being hybrid cloud v closed clouds, Google, Microsoft, Amazon et al, will be “thrilled” by the marriage of Red Hat and IBM: “This is about creating more for all of us.”
So everyone should be reassured, and will benefit. Just, not for a while. A long while. Remember, it’s the latter half of 2019, when the deal is scheduled to close. That nine months or more of lag gives the rest of the world plenty of time to make their moves – and for individuals to make theirs.
In fact, this deal affects so many and yet is so far away, that it was hard to sift wisdom from the flood of retweets on Twitter. However, perhaps Weaveworks CEO Alexis Richardson spoke for many with this tweet.
All redhat people! We are hiring. Sales and technical and more. DM me
— Alexis Richardson (@monadic) October 28, 2018