From red to blue: Analysts' views on IBM-Red Hat takeover: Page 2 of 2

Hybrid play

Strategically speaking the deal to buy Red Hat hinges on what IBM believes to be the growth of hybrid cloud.

Essentially hybrid cloud is a cloud computing scheme that sees a combination of IT workloads that are partially kept on premise and partially run on the infrastructure of public cloud providers’ such as AWS, Microsoft Azure or GCP, three of whom are leaders in this space.

IBM’s Rometty was quoted as saying that the deal is a “game changer” and that it’ll make the company the “No 1 company in hybrid cloud,” and that “it’s going to be a critical part of IBM’s future.”

While that is what you will expect IBM’s CEO to say at a press conference, some analysts believe that only the last of the three comments applies to IBM.

Ed Featherston, vice president and principal architect at Cloud Technology Partners, told Tech Target that the move is aimed at boosting IBM’s profile in the cloud space to give the company more credibility when it talks to customers about hybrid cloud.

“Without having done this, IBM would have probably faded away,” Featherston said. “I can’t think of a single client I have worked with in the cloud, whether public, private or on premise, that doesn’t have some level of the Red Hat stack in those environments, and now it’s [going to be] IBM Red Hat stack in their environments.”

Gartner lead analyst for cloud Lydia Leong argued that the deal “isn’t a game changer in the way Rometty has claimed,” and added that she doesn’t expect the IBM-Red Hat deal to impact the current cloud landscape much, and that it should not influence buying decisions related to public cloud.  

Leong’s fellow Gartner analyst Dennis Gaughan believes the move isn’t defensive on IBM’s part but more doing something dramatic and bold as part of their strategy.”

When asked if this move by IBM was defensive in nature, a move to keep out potential suitors of Red Hat, he said, “They seem clearly focused on helping customers manage the transition of the majority of their application assets to the cloud.

“They see Red Hat as a piece that gives them the ability to help clients modernise and deploy to different cloud platforms. They continually stress hybrid and multi-cloud as the motivation for the deal.”

Gaughan said the acquisition is really targeted at the traditional enterprise customer – IBM’s sweet spot install base and helping those customers with their cloud migrations. This has product and service revenue implications which is why IBM made the deal, he noted.

That said, Gaughan acknowledged that to make this work, there is a need to ensure there is no overlap between what IBM and Red Hat have to offer in their respective portfolios.

“While they emphasise during the investor call that there is no overlap between the portfolios, there is some. More clarity for customers on product roadmaps will be essential. There is also the question of the merging of cultures with any acquisition and it remains to be seen how that will go.”

IBM’s hybrid cloud ambition may make sense given its legacy and installed based but it certainly isn’t going to have it easy as the three leading public cloud players are also hedging in the hybrid arena.

AWS established deeper roots with virtualisation player VMWare Inc in 2016 in a bid to shore up its hybrid offerings, while Microsoft’s hybrid play is focused on its Azure Stack offering and Google recently announced its Cloud Services Platform.

Meanwhile, Cloud Technology Partners’ Featherston believes that for the moment, CIOs do not need to worry about the deal.  

“As long as IBM lets Red Hat be Red Hat — allowing the open source provider to continue with the way it has conducted business — the impact for CIOs, whether they choose to go with IBM or not, should be minimal," he said.

He also saw no reason for existing IBM customers to think about changing their cloud strategy because if anything, the deal will ultimately give them more flexibility.

“They can feel safer if they want to stay with an IBM cloud model,” he said. “But they don’t have to feel that it’s a risk if they go elsewhere because they are still going to be an IBM customer, they are still going to be running Red Hat in AWS [if they decide to go with Amazon cloud].”

Constellation Research’s Wang added that the deal will also depend on how long Red Hat CEO Jim Whitehurst, who had led the company for over a decade, stays with the unit.

“If Whitehurst doesn’t stick around for awhile, the deal could go south,” he said, adding that IBM had agreed to let Red Hat operate independently.