Following the consummation of IBM's $34 billion Red Hat acquisition, IBM swears up and down that it won't "bluewash" the open source vendor. Red Hat will remain independent, IBM says.
Speaking on a conference call with analysts Tuesday, a few hours past the deal close, an IBM spokesperson asked executives if the deal will result in "bluewashing" -- Red Hat being forced to conform to IBM culture.
"I think we both recognize from day one that would be a bad thing for both Red Hat and IBM," said Paul Cormier, Red Hat president, product and technologies. "Our mission stays the same. Our development model remains the same."
"I think if anything there may be more of a pale red rinse on IBM than a bluewash on Red Hat," added Arvind Krisnha, IBM SVP of cloud and cognitive software. One of IBM's main reasons for the acquisition is learning from Red Hat's open source and innovation culture.
Red Hat will integrate into IBM's Cloud and Cognitive Software segment, with Red Hat CEO Jim Whitehurst joining IBM's senior management team, reporting to IBM CEO Ginni Rometty. IBM will maintain Red Hat's headquarters in Raleigh, N.C., its facilities, brands and practices, according to a statement from IBM Tuesday. The business unit will continue to be called "Red Hat," not "IBM Red Hat" or some other moniker reflective of its parentage, executives said on the call Tuesday.
The motivation for the deal is hybrid cloud, which IBM defines as organizations migrating to multiple public clouds, as well as private cloud based on-premises, and legacy systems that are still vital to running the business. Organizations need to integrate all those systems together to innovate. While executives Tuesday spent most of their time talking about the enterprise impact, the migration is a challenge that service providers face in moving their networks from purpose-built hardware to cloud software. IBM sees service provider benefit to the Red Hat acquisition as well.
Red Hat has in the past partnered with both IBM and IBM's competitors in making deals with customers. That won't change, Cormier said. "That ecosystem has been a huge contributor to our success, and will continue to be a huge contributor to our success," he said. "Red Hat has to have the independence to work on different partners, different bids, in order for our horizontal platform to be ubiquitous." Red Hat will have a different sales team than IBM, and its salespeople will not be compensated on IBM products. Channel programs will remain independent, although IBM would like partners to belong to both channels.
Previous IBM acquisitions have been "tuck in," Krishna said, with the acquired company adding to IBM's customer base and skills. The scope of this agreement requires greater independence from Red Hat.
IBM will evolve toward Red Hat's business model, more software-based, based on open source, and based on subscriptions as opposed to licensing, Krishna said.
The two organizations have very little overlap or competition in their product sets. They serve different use cases and customers. And where they do overlap, IBM will offer both technologies, Cormier said.
IBM is paying a premium for Red Hat. Red Hat's 2019 revenues for the year ending February 28 totaled $3.4 billion, up 15%. By comparison, IBM revenues came in at $79.59 billion for calendar 2018, up 1%.
Red Hat revenues were up in its most recent quarter, signaling customer confidence in the deal, Cormier noted. Red Hat revenue was $935 million, up 15% year over year.
IBM lags far behind public cloud providers Amazon Web Services, Microsoft Azure and Google Cloud in terms of market share. IBM says it's playing a different game than those companies, with IBM pursuing a hybrid cloud strategy that leverages the public cloud platform for business value.
— Mitch Wagner Executive Editor, Light Reading