by Peter Sayer

Making sense of IBM-Red Hat in the multi-cloud era

News Analysis
Oct 29, 2018
Cloud ComputingIBMMergers and Acquisitions

IBM’s bid to buy Red Hat will see it integrating rivals’ cloud infrastructures, luring new clients to the cloud, and potentially kicking off an industry-wide series of cloud mergers.

ibm logo
Credit: Reuters/Lucy Nicholson

IBM’s $34 billion bid for Red Hat will have left customers of the two companies wondering what comes next.

Big Blue wants Red Hat because it is “the world’s leading provider of open-source cloud solutions, and the emerging leader in the platforms for hybrid cloud and multi-cloud,” IBM CEO Ginni Rometty said in a conference call Monday.

Red Hat Enterprise Linux is known for its CloudForms hybrid cloud management tool, based on the ManageIQ open source project.

“This is about resetting the cloud landscape, and we will be the undisputed No. 1 leader in hybrid cloud,” Rometty said.

Cloud neutrality

Rometty had some reassurance for IBM cloud customers worried that means they will have to run their applications on Red Hat Enterprise Linux, and for users of Red Hat’s flavor of the OpenStack cloud OS concerned they will have to move their workloads to the IBM cloud.

IBM will work to maintain Red Hat’s “Switzerland-like” status with respect to its partners, Rometty said.

That’s presumably not a suggestion that Red Hat is isolated, expensive and reluctant to give up customers’ data, but rather a reference to Switzerland’s longstanding political neutrality.

Red Hat’s cloud hosting partners include IBM itself, Amazon Web Services, Google, and Microsoft — as well as less prominent players such as Alibaba Cloud, Fujitsu, Huawei, Rackspace, and over a hundred more. Keeping Red Hat neutral — IBM plans to operate it as a distinct unit within its larger hybrid cloud team — means that enterprises with workloads on RHEL will still be able to choose where they run them.

IBM-Red Hat impact on customers

Dennis Gaughan, chief of applications research at Gartner, said IBM recognizes that most enterprises will exist in a hybrid, multi-cloud world, with workloads on premises and in multiple public clouds. Indeed, Rometty said the average customer already has a thousand applications spread across five — and in some cases as many as many 16 — clouds.

But according to Gaughan, it could be enterprises with little or no cloud footprint that get the most attention from IBM, going forward. “They see the value proposition of the combined company targeted at customers who still have the majority of their existing applications on premise and need to modernize those applications to become more cloud native,” he said.

For Holger Mueller, principal analyst and vice-president at Constellation Research, “The winner organizations are the combined customers — and likely Red Hat customers. They get more stability for a few years. If they like IBM is another question.”

That’s not the only outstanding question, of course. There are still many unresolved details, said Gartner’s Gaughan: “There is a lot that the two companies can’t do or say in terms of product roadmaps until the acquisition closes. As a result, it’s hard to say who the winners and losers will be at this point,” he said.

A consulting conduit to Google and AWS

The real pressure on IBM, said Constellation’s Mueller, is to keep Red Hat’s partnerships with AWS and Google in place, and to position itself as the on-premises partner for those businesses. Neither AWS nor Google have a consulting business, which could be why Rometty was also keen to emphasize the “Swiss” nature of IBM’s Global Business Services (consulting) and Global Technology Services (IT management) arms, which will be called on to work with them.

Red Hat CEO Jim Whitehurst said the company’s brands, facilities, go-to-market and partner strategies will remain intact after the deal with IBM closes. “This is about providing choice and making sure customers are not locked in,” he said in the same conference call in which Rometty spoke.

Cloud mergers on the horizon?

One move that could be bad for IBM but good for either AWS or Google enterprise customers, said Mueller, would be if one of those companies were to buy Red Hat rival Suse, the company behind SLES (Suse Linux Enterprise Server). Suse is back in play after former owner Micro Focus flipped it to Swedish private equity fund EQT Partners in July.

Those may not be the only cloud mergers that CIOs have to look forward to: Financial analysts are already predicting a wave of other cloud acquisitions in the wake of IBM’s move on Red Hat.