IBM and Red Hat…Go For A Swim

I know I am late to the party but I wanted to think about the acquisition of Red Hat by IBM before writing about it (crazy huh?).

I’ve read different articles and blogs and there seems to be many important questions with no real definitive answers.  Is Red Hat worth $34 billion?  Did IBM buy them because of Hybrid Cloud?  Containers?  RHEL?  Will Red Hat’s open source culture clash with IBM’s big iron mentality?  Is IBM on the brink of crashing and burning?

Here is my take on it but I reserve the right to be very wrong:

(1)  Is Red Hat worth $34 billion?  Maybe.  The high tech industry has a history of over spending on acquisitions.  And a lot of it is on companies and products that are crap (I’m looking at you Autonomy).

The key to these types of acquisitions is if Big Blue can “‘supersize” revenue growth for Red Hat using all of IBM’s resources, customers and brand.  Red Hat is the real deal for the most part (I am not a huge fan of their storage) so we know that product and technology viability is not an issue.  It will all come down to the go-to-market strategy and vision.   There is little evidence so far that IBM has either.  They may have a grand plan but there is no indication of this based on how they’ve handled the announcement.  Perhaps they are keeping their cards close to the vest.

(2)  Hybrid Cloud tends to be an outcome and not a well thought out strategy by customers.  Hybrid Cloud is inevitable but there is yet to emerge an Enterprise-class high tech vendor that offers a powerful strategy, road map and solution set.  This would also require real buy-in from the customer’s executive team in order for it to be implemented successfully.  IBM does still have that type of muscle – if – they could actually put all of the moving pieces together into a cohesive and compelling offering.

(3)  Containers are cool but still not a needle mover in terms of revenue – a mere drop in a $34 billion bucket.  And I don’t see immediate strategic value – its not as if large companies are clamoring to fulfill critical business requirements that rely on containers.

(4)  RHEL is still extremely important but often under appreciated in this announcement.  Linux has basically won the OS wars and it just feels right that IBM is a significant OS company again.  IBM needs to be the Godzilla to Microsoft’s King Kong.

(5)  Open Source and IBM?  Its a unique competitive advantage, the model has already been proven to work and Red Hat has figured out how to do this to the tune of over $3B in annual revenue (and growing).  It should be fine unless IBM are colossal jackasses (which is not outside the realm of possibility).

(6)  IBM on the brink?  I think there are massive changes that are happening over the next ten years that will challenge the status quo of pretty much the entire industry (no one is safe).  But even so, big companies take a long time to fail, especially one with so much incumbency and diversity.  And my experience is that Enterprise customers don’t modernize nearly as fast as most people think.

Here is a crazy thought.  What Microsoft has done with Office 365 has been extremely impressive and has elevated them to a completely different level.  IBM could take a page from Microsoft and provide a Software-as-a-Service platform that includes a suite of popular Linux-based applications and build an ecosystem of ISVs to add to the catalog of offerings.  Although I know this is far, far easier said than done, it would allow IBM to balance traditional on-premises solutions with SaaS (which will be the dominant way we access applications over time).  Microsoft has executed brilliantly at both the technical and business levels in this regard – much to the surprise of nearly everyone.  Something of that scope could be a true game changer for IBM and cast aside all doubt that they are past their prime.   And they could finally get some real value out of Watson by using it for this proposed SaaS platform (watch my Potential of the Platform video).  But I doubt that this idea is even a glint in IBM’s eyes.   Besides it would take tons of work, time and resource and there is no guarantee that they would do it right.

IBM acquiring Red Hat is bold simply based on the size of the deal, so you have to give them credit for that.  On some level though, it is also kind of lazy.  That doesn’t mean it isn’t smart or won’t be wildly successful but it seems like more “business as usual” but with a bunch of new stuff.  It would have been far more impressive if IBM made this move when Red Hat was sub-$1 billion in revenue because they would have been ahead of the curve.  You know, like when EMC acquired VMware.  It should have been IBM that bought VMware back in the day.  IBM invented LPARs for crying out loud!

There are a couple of other major companies and probably a dozen smaller but substantial ones that IBM could have bought that have the potential to spark real and sustainable reinvention right out of the gate.  But perhaps that is the point.  IBM is just being IBM and doing what it always does but in a really big way this time.  It is like trying to get a fish to fly.  Having no concept of flight, it will only exhaust itself swimming faster and faster at the attempt, to the frustration and disappointment of all those involved.  But swimming is cool.  Not every thing is meant to fly.





2 thoughts on “IBM and Red Hat…Go For A Swim

  1. @Tony,
    You pass by containers just saying ‘does not move the needle’ where as this is true, you do RKT a disservice (not the government issued blockchain token..). We all know Docker has its problems, and is a security nightmare, and VMware has such a tax (price and CPU), a true container system is needed (isolation form OS strangeness, patch upgrades all sorts of logistical nightmares) for us running applications at scale.
    Containerization will undergo a large transformation soon, adding in some level of durability/mobility just as VMware did, and NTAP did before that.. once the vision of running a job anywhere becomes a bit more real, the fundamental definition of cloud begins to morph. Now in this new utopia, what is the definition of hybrid? I submit a job with some container to wrap it, it moves to the data, gets what it needs, perhaps moves to more data at another location, and returns a much better response than I could have afforded in any one company/silo. (assuming you believe more data leads to better decisions..)

    So, if there was a vision of this new paradigm, and RKT was understood to be a foundational component, would you amend your passing it off as ‘inconsequential’?

  2. @Per,

    I fall in love too easily as well – with vision and technology and dreams of “utopia”. I did not actually say that containers were “inconsequential” but that it would not make a material impact on IBM’s revenue in the foreseeable future (which you agreed with).

    I am not as convinced as you that containerization will go through a large transformation “soon” – which of course is relative. I believe we still have a long road ahead before your new utopia is realized – multiple years. Which is okay because the market will still be there by then. However, I am not convinced IBM will be the one to bring us to the promise land because of all of the variables involved. That is not a core competency I would ascribe to them. However, if IBM had this vision and are invested in its outcome and make it happen – then I will be thoroughly impressed.

    However, I will not answer your question on consequentiality because I never actually made that statement haha!! Good try though trying to make me structure an argument on a position I never actually held.

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