IBM’s recent acquisition of Red Hat came as a shock to many in the industry. It does have some overarching positives. It validates the mainstream acceptance of open source by enterprises. It proves hybrid cloud is as critical as public cloud to these enterprises, if not more so. And it lends credibility to a fourth public cloud provider, ensuring enterprises have more choice and a way to stitch applications across a multi‑cloud infrastructure stack.
I’ve seen a lot of people venting on social media and, to be honest, I get it. Acquiring Red Hat comes with a tremendous amount of responsibility. But it’s also a brilliant move by IBM. I’ll elaborate on that in a bit, as well as why I think it’s a net‑positive for NGINX, but first I need to back up a bit.
You’re probably wondering why I have a viewpoint on this acquisition. Well, I feel I have a unique perspective that qualifies me to comment. I worked for IBM early in my career and was part of the Lexmark spinout. I worked for Red Hat for 10 years, which, assuming the deal closes, will be spun in to IBM. And I’ve spent the last six years working for another open source company that closely partners with both Red Hat and IBM. That’s over two decades of perspective.
IBM’s Acquisition of Red Hat Is Brilliantly Strategic – and a Bargain
Like many, my first reaction to the news was surprise. I figured Microsoft or Google would be better suitors for Red Hat. Think about it. Microsoft has been going through a cultural and technological transformation. Satya has done a great job of reinventing Microsoft as a modern, innovative company. It’s committed to open source, which culminated in the $7.5B acquisition of GitHub, and roughly 50% of workloads on Azure are Linux. Then there’s Google, a prolific producer of open source software, although it’s not always clear that it’s for altruistic purposes. Google is playing catch‑up in the public cloud space and having the leading Linux vendor would complement Kubernetes, Istio, and other projects designed to onboard enterprises to Google Cloud.
But neither emerged as acquirer. IBM stands to be the future caretaker of the world’s largest commercial open source vendor, and many of the most influential projects and communities that come with it.
Then it occured to me. At $34B – the largest acquisition in its 107‑year history – IBM is getting Red Hat at a great price.
- IBM will get an instant infusion of $3B in revenue. IBM has suffered five consecutive years of revenue decline, but combining with Red Hat is projected to result in 2% revenue growth within 2 years.
- IBM will get market‑leading technologies to offset older solutions. IBM now has a great migration path for API management, from DataPower® Gateway to Red Hat® 3scale. Same goes for IBM WebSphere® Application Server to Red Hat JBoss® Enterprise Application Platform. IBM will also get Red Hat OpenShift®, a leading Kubernetes platform, to assist customers building new containerized applications.
- Red Hat is strategically positioned to provide enterprises an on‑ramp to IBM Cloud as an alternative to AWS, Azure, and GCP. Tight integration of Red Hat technologies to burst workloads to IBM Cloud are an obvious next step. With RHEL®, IBM also adds the de facto cloud operating system to its position of leverage.
In essence, IBM bought its future back.
However, I’m reminded of another important business truism: Culture trumps strategy, every time. Or, as management guru Peter Drucker put it more colorfully: Culture eats strategy for breakfast. This brings me to my final reason the acquisition is good for IBM.
IBM will get 12,000 talented employees and a great, open culture. In fact, I wouldn’t be surprised if IBM’s goal is to transform its culture to be like Red Hat’s. And who better to lead that than Red Hat CEO Jim Whitehurst, as a successor to Ginni Rometty.
The Red Hat acquisition is a great strategic move, but if IBM kills the culture – inadvertently or not – it will destroy the value. It’s critical to maintain the transparency and knowledge sharing that I remember from my 10 years at Red Hat as the driving force behind its success. In a time when knowledge is king, IBM can’t hoard it. To do so would be the antithesis of open source.
IBM Needs to Keep the Red Hat People, Culture, Technology, and Community Alive
Which brings us full circle.
IBM: Your future looks bright. But with great power comes great responsibility.
Red Hat is a critical player in the open source ecosystem. With Red Hat, you have an opportunity – and responsibility – to:
- Further legitimize open source on a global scale that was previously difficult to imagine
- Accelerate container adoption in mainstream enterprises
- Smooth the path from private to hybrid to multi‑cloud infrastructure
These are critical trends that will raise the tide for many boats, including NGINX. We foresee the combination of IBM and Red Hat accelerating the digital transformation journey for mainstream enterprises, which in turn grows our market opportunity. With over 66% of the busiest web applications already using NGINX to deliver their digital experiences, we’re excited to help the next wave of customers. We believe NGINX is uniquely positioned to help companies implement hybrid clouds, a trend IBM will accelerate with this acquisition. Our work with both companies – specifically, NGINX Plus shipping as the Router in Red Hat OpenShift Container Platform 3.10 and providing the Ingress controller in IBM Private Cloud – makes us key to companies at any stage of maturity as they migrate to cloud infrastructures. And given we already work across AWS, Azure, and GCP, we extend to any cloud a single, dynamic application gateway that handles all app and API traffic.
IBM, you stand to be the owner of the world’s most powerful open source brand, and with it comes a proportionate amount of responsibility to see it survive and thrive.
We watch with some nervousness but also excited anticipation to see what you can do with Red Hat as we stand ready to help.
Featured photo by Matt Duncan on Unsplash