IBM spend 34 Billion on RedHat in an attempt to become the Number 1 Cloud Provider

IBM spend $34 Billion on RedHat; is this the silver bullet that IBM require to become the number one cloud provider? Here’s our Commercial Directors thoughts.

With IBM lagging behind in the Cloud provider war, it has made the bold manoeuvre of stating its intention of buying Open Source Giant, RedHat.

Industry Opinion Piece: Author Sam Mager, Commercial Director.

Personally this is one that I didn’t see coming, but it has been no secret that IBM have needed to do something to even the Cloud provider playing field against the likes of Amazon, Microsoft and Google, given that they have seen consistent decline in their revenue year on year and with Cloud growing year on year, this seemed like the obvious place to make a move.

Why RedHat?

RedHat as a developer has a great portfolio of assets for the current cloud first/forward era that we are in, and the vendor is well loved by a huge base of developers around the world. From its foundation on RedHat Enterprise and JBoss through to more modern offerings of OpenShift and Ansible, they are able to assist businesses transition smoothly from legacy on premise platforms to public cloud offerings. Public Cloud is well established and is a good choice for many applications and operations, but the transition from one to the other has often been the blocker; RedHat is able to assist with the creation of the gateway to enable the evolution of one to the other.

What is perhaps surprising is looking at RedHat’s business model of being purely an Open Source business and understanding the premium that IBM are paying to acquire a business that generates a modest (in comparison to the price being mooted for the purchase) $3B. Given that IBM’s 2017 revenue was $79B, this is a substantial investment and one that surely will not return a quick ROI, but ultimately has been deemed necessary to keep IBM relevant in the cloud provider space.

So, is this a “do or die” move on IBM’s behalf, I for one think that it is, $34B is a big dent for anyone to take if this doesn’t have the desired affect and increase (greatly) IBM’s market share against the current cloud provider behemoths. IBM have seemingly pushed its chips into the middle of the table on this one, so what will make it work? What do RedHat have that IBM don’t that is the real difference maker?

A new portfolio of products and a whole army of new fans?

One thing IBM has lacked that is of utmost importance in this cloud era is the mindshare of the developers, something that RedHat clearly has. Is it this mindshare that IBM are betting so heavily on? At the end of the day, developers vote with their feet and so far they have not been marching to the beat of IBM’s drum, but this acquisition could very well be the change of tune to fix that and turn the tide in IBM’s favour. So IBM get a new portfolio of products and a whole army of new fans, “IF” they are not put off by the new ownership.

It is estimated that $1 dollar of investment with a cloud provider turns into $1000 over the life time of a contract for services, so IBM turning this investment into a positive is eminently doable, it will just take time and will need to be the USP required to make IBM more relevant in the ever evolving cloud space.

Will Big Blue pull it off and make this the success it needs to be? Sitting back and watching it play out will be very interesting and as an agnostic partner of all of the public cloud providers, I shall personally be watching this with great interest.

Read the official press release from IBM.

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