On Sunday, IBM announced its acquisition of Red Hat. Red Hat is the world’s leading provider of open source cloud software. The $34 billion deal is one of the largest acquisitions in the history of the U.S. tech industry. With this price tag comes a clear indication of the importance cloud services play in digital transformation.
A ‘Big Bet’ for IBM
IBM has struggled over the last five years to see consistent revenue growth. Cloud infrastructure is an area where it has fallen further behind competitors like Amazon and Microsoft. With Red Hat, IBM makes a major move to not only become equal to its competition, but to elevate itself above others in the field.
Ginni Rometty, IBM Chairman, President, and Chief Executive Officer, said, “The acquisition of Red Hat is a game-changer. 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.”
Rometty also noted that only 20% of enterprise workloads have been moved to the cloud. The remaining 80% signifies the potential for new business value and growth. Many in the industry see this as an opportunity to take cloud services to the next level. IBM has now made a distinct move to be in the forefront of that future growth.
The two companies won’t fully merge until at least the second half of 2019, but when they finally do come together Red Hat will become a unit of IBM’s Hybrid Cloud division. IBM and Red Hat will enable businesses to do more work in the cloud while keeping their data secure and mobile, regardless of which cloud technologies they adopt.
Jim Whitehurst, President and CEO of Red Hat, explained the value he sees in aligning with IBM. “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.”
The Future of IBM
There is still a lot of time until this merger comes to full fruition. However, many commentators are already guessing at what this will mean for IBM. As this acquisition is a decidedly ‘big bet,’ it feels to many as if IBM is making a major push back towards its basis in the enterprise software and services business. This could mean that its Watson practice, focused on artificial intelligence, may move to the backdrop in place of a rejuvenated push in cloud computing.
From a greater market perspective, this acquisition will likely stir up some new competition in the cloud services space, especially given the $1 trillion growth market potential for hybrid cloud services.
What do you think the future of IBM will be with the Red Hat acquisition? Let us know in the comments below.