IBM's $34 billion Red Hat purchase just closed, and its cloud boss says it gives Big Blue an advantage in the 'trillion dollar' hybrid cloud market (IBM, MSFT, GOOG, AMZN)


IBM Senior Vice President Arvind Krishna

  • IBM just closed its $34 billion acquisition of cloud software giant Red Hat, the biggest acquisition in the tech giant’s history.
  • As the deal closed, IBM vowed once more to keep Red Hat independent.
  • IBM’s top cloud exec said Red Hat will boost its hybrid cloud strategy — a market that it sees as being worth $1 billion.
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IBM on Tuesday closed its $34 billion purchase of Red Hat, the tech giant’s biggest acquisition ever, which Big Blue hopes will boost its bid to dominate in hybrid cloud — a market that it sees as a $1 trillion opportunity. 

IBM unveiled its acquisition ambitions in October, raising eyebrows on what it hopes to gain from an expensive buy, while also causing a stir on what it means for Red Hat, the open source cloud software giant. IBM, for its part, has said that it boosts its hybrid cloud strategy, which it sees as a massive market. 

IBM’s top cloud executive reaffirmed this on Tuesday.

“[Hybrid cloud] is a trillion-dollar opportunity, which is half of the total enterprise IT market,” Arvind Krishna, an IBM senior vice president who is leading the company’s cloud initiatives, told Business Insider.

IBM maintained that Red Hat will remain an independent entity. IBM CEO Ginni Rometty herself reaffirmed this in May, saying at a Red Hat event: “I don’t have a death wish for $34 billion. I’m not buying them to destroy them. It’s a win-win for our clients. It’s a way to drive more innovation.”

The independence of Red Hat is also top of mind for the developers who rely on the company’s wide variety of open source tools, especially Red Hat Enterprise Linux. When the deal was first announced, open source developers were concerned that IBM would stifle Red Hat’s culture, causing ripples across the market.  

IBM also has stressed that buying Red Hat would strengthen its position in the cloud market, where it has been lagging more dominant players led by Amazon and Microsoft.

Focus on hybrid cloud

IBM is focusing its strategy on hybrid cloud, in which businesses store and process data and use applications on a public cloud, such as those run by Microsoft and Amazon, while still performing some of those tasks on their own data centers. 

After the acquisition was announced, IBM executives noted that Red Hat’s software is already popular in both the server room and on public clouds like those of Amazon, Microsoft, or Google. In that light, Krishna says, bringing Red Hat into the fold just adds fuel to the fire as IBM pushes into hybrid cloud. 

“This is about scaling and bringing to our clients the benefits of the hybrid approach,” Krishna said. “Hybrid is not a phase. It’s the destination.”

Paul Cormier, Red Hat’s president for products and technologies, also highlighted IBM’s hybrid cloud strategy, saying, “That’s the way customers are deploying the cloud, hybrid.” He said merging with the tech behemoth would put “the strategy we’ve been on for years on steroids.”

Analyst Patrick Moorehead of Moor Insights and Strategy said buying Red Hat could help IBM “gain ground in the cloud space as Red Hat plus IBM could be at the forefront of hybrid cloud for large enterprises.”

But he stressed the importance of maintaining Red Hat’s independence: “To work best, IBM needs to integrate enough to matter, but distance enough to quickly innovate.”

Analyst Roger Kay of Endpoint Technologies Associates also said buying Red Hat was “a good deal” for IBM, saying the company “needs major growth in its leading-edge businesses to make up for years of decline in its traditional areas.”

He was less impressed with IBM’s vision for dominating the hybrid cloud market, given its recent struggles in the corporate tech arena. “IBM is likely to grab only a small part of that, which would still be good.”

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