IBM Is Buying Red Hat, Aims to Be Top Hybrid Cloud Provider

IBM and open-source software provider Red Hat announced that they have reached an acquisition agreement. Marking what will be the third-largest tech acquisition in U.S. history, IBM will purchase all issued and outstanding common shares of Red Hat in a deal valued at approximately $34 billion. Red Hat is the largest distributor of open-source operating system Linux. The deal reflects IBM’s ambitions for a piece of the fast-growing cloud computing market. “The acquisition of Red Hat is a game-changer,” said Ginni Rometty, IBM chair, president and chief exec. “It changes everything about the cloud market.”

“IBM will become the world’s #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses,” she added. “Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.”

According to the press release, IBM plans to provide an “open approach to cloud, featuring unprecedented security and portability … across multiple public and private clouds, all with consistent cloud management.”

Additionally, the company will “maintain Red Hat’s open source innovation legacy, scaling its vast technology portfolio and empowering its widespread developer community,” and Red Hat will “operate as a distinct unit within IBM’s Hybrid Cloud team.”

According to Recode, the deal “comes at an acquisitive time in the enterprise space: Microsoft made a splash with its $7.5 billion purchase of Github earlier this year; Amazon and Google are also striving to gain the edge in cloud computing. Despite its pre-Web 1.0 dominance, IBM has struggled for relevance in this age, and has seen its share price fall by 30 percent over the last five years. It is clearly betting that a big acquisition can change that.”

North Carolina-based Red Hat was founded 25 years ago and is currently the largest distributor of the popular Linux operating system.

“With the deal for Red Hat, IBM is trying to position itself as a kind of corporate ‘Switzerland’ in cloud computing — a trusted partner of businesses that are moving to the cloud, but are leery of becoming dependent on one major cloud supplier,” notes The New York Times. “In the cloud model, software developers write applications that run on remote data centers. The advantage can be lower costs and faster development of new business software.”

“Open source is the default choice for modern IT solutions, and I’m incredibly proud of the role Red Hat has played in making that a reality in the enterprise,” said Jim Whitehurst, president and CEO of Red Hat. “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation.”

“IBM may have found something more elementary than ‘Watson’ to save its flagging business,” suggests TechCrunch. “Though the acquisition of Red Hat is by no means a guaranteed victory” for IBM, it could prove to “be a better bet for ‘Big Blue’ than an artificial intelligence program that was always more hype than reality.”