On October 28, IBM announced its intention to acquire Red Hat, a $3 billion software company that provides open-source products to enterprises. In IBM’s own words, the acquisition will “unlock true value of cloud for business.” Red Hat will operate Red Hat as a distinct unit within IBM’s Hybrid Cloud team. In a press release, IBM Chair, President and Chief Executive Officer Ginni Rometty articulated why IBM made the $34 billion acquisition:

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. 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.

The acquisition occurred just as Forrester was publishing an evaluation of cloud data warehouse providers that ranked IBM as a strong performer alongside Microsoft and behind Amazon Web Services, Snowflake, Google, and Oracle. In this post, we’ve answered a number of questions that you might have about the IBM/Red Hat deal. As cloud computing continues to make news, we’re sure you’ll have more.

#1 – Why did IBM acquire Red Hat?

This deal is all about making the cloud more distributed. With the acquisition, IBM will have a cloud operating system that can be “containerized” and distributed in a multi-cloud environment. IBM can bring services into Red Hat so that customers can build solutions in a multi-cloud environment.

As key industries continue to explore cloud neutrality, IBM/Red Hat can now explore multi-cloud solutions as well as combine technology enablers of IBM cloud to extend to other clouds similar to AWS and other competitors.

A cloud provider being able to containerize cloud-based services can give customers a reason to host natively on its cloud or extend the services across clouds. Doing so provides digital products multi-cloud, and multi-regional cloud services to customers.

#2 – What is the impact of the deal on IBM/Red Hat customers?

IBM and Red Hat will be able to host the IBM cloud publicly (where a client pays as it goes) or privately (on a client’s own hardware).

Most customers of IBM and Red Hat operate in a multi-cloud public or private architecture.  The key for IBM is to take care of the customers who are still hosting applications on-premise, and then to modernize those applications so that they can be hosted in the cloud. Meanwhile IBM must continue to work on a path for existing cloud customers to leverage a hybrid cloud solution with IBM/Red Hat (along with customers’ existing clouds). Doing so will take time to ensure both IBM and Red Hat offer new solutions or rebrand existing solutions. Both companies must provide a compelling combination of services for existing customers to leverage in the IBM cloud.

#3 – How does this deal make IBM more competitive?

The acquisition of Red Hat means IBM can compete more directly with Amazon, Google, and Microsoft in the cloud arena. IBM can use Red Hat’s services to build into their current public cloud and start to catch up to Amazon, Google, and Microsoft, which offer more cloud-based tools.

#4 – Why is cloud computing heating up?

The advent of containerization is making it possible for more businesses to manage work to the cloud in a more flexible way. No longer do businesses have to choose one platform. They can manage multiple cloud solutions in different regions. In essence, cloud computing is becoming more competitive and flexible.

#5 – What’s next for providers of cloud computing?

We see acquisitions of open-source containerized tech stacks. For example, VMware just announced the acquisition of Heptio to help enterprises build and run containerized architectures. Heptio’s products and expertise help organizations deploy and operationalize Kubernetes (an open-source container-orchestration system for automating deployment, scaling and management of containerized applications). By acquiring Heptio, VMware intends to “drive cloud native technologies forward to create more value for customers and the open source community,” according to a press release. The cloud is no longer a monolith. It’s exploding across multiple formats, triggering merger & acquisitions across the provider landscape.

For more insight into how to build lovable products with the cloud, contact Moonshot.


Richard Striedl

Richard Striedl

Practice Lead, DevOps