IBM Red Hat deal positions for second age of cloud, says IDC

Analyst company says deal will bolster IBM, create strong industry promoter for open source

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IBM Red Hat deal positions for second age of cloud, says IDC IBM's acquisition of Red Hat puts it in leading position for offering hybrid cloud.
By  Mark Sutton Published  October 31, 2018

IBM's planned acquisition of Red Hat will not only bolster IBM's position in the cloud space, but could also position the company as the ‘industry's strongest promoter of open source technologies', according to IDC.

The analyst company said that the deal will support IBM's cloud plans, and also may drive further M&A in the open source sector.

IDC said that the deal will bolster IBM's efforts to build out all aspects of public, private and hybrid cloud, in line with the emerging ‘second age' of cloud computing, where enterprises are looking for hybrid, open, multicloud solutions with enhanced security and manageability.

The acquisition also gives IBM the ability to bundle Red Hat solutions on its own platform. IBM will also gain access to Red Hat's engineering expertise.

IDC also said that the move will further reshape perceptions of IBM as it attempts to reinvent itself.

In the open source area, IDC notes that both companies have long histories in the sector. Red Hat proven track record open source in acquiring a portfolio of solutions through acquisitions, and sharing the underlying code open source model, while IBM was early supporter of Linux and is active in the OS community. The deal will give IBM deeper access to an "ecosystem of developers and associated open source foundations and communities that that it likely does not currently reach", IDC said, as well as Red Hat's customer base with 90% penetration of the Fortune 1000.

"Together, Red Hat and IBM will have the scale, resources, and expertise to be the industry's strongest promoter of open source technologies," IDC said. Growth from the combined company will come from several areas, including: New IBM end-to-end offerings in areas such as AI, cloud, and middleware built on the Red Hat software stack; and deep services integrations aimed at helping enterprise clients with both their cloud implementations and digital transformation needs.

IDC argued against IBM's claim that there is no overlap between the two companies, noting that

IBM's platform-as-a-service offering Cloud Foundry could be seen as competing with Red Hat's OpenShift

IBM maintains that OpenShift is an underpinning of its Cloud Foundry solution and as such is more complementary than competitive, but this is likely to be confusing in the industry. While RHEL will give IBM immediate access to the majority of enterprise customers that use Linux, the OpenShift product is seen as the Red Hat platform of the future. As such, IBM cannot afford to have a confusing or internally competitive hybrid cloud stack. To bolster the growth of Red Hat OpenShift, we would expect IBM to quickly develop a road map to help existing IBM Cloud Foundry customers understand the relationships and potential overlaps and understand if a long-term migration to a native Red Hat OpenShift environment makes sense. Expect other Cloud Foundry distribution providers, including Pivotal, SAP, and SUSE, to offer migration road maps to this installed base of customers.

IBM will also need to address any confusion in three areas - integrating Red Hat's storage into its own storage portfolio; correct positioning of Cloud Foundry and OpenShift; and fitting Red Hat's application portfolio into its Rational Software unit. Relationships with vendors that have partnerships with Red Hat, such as VMware will also have to be renegotiated.

In terms of the wider cloud market, IDC says that the acquisition changes the landscape on many fronts for IBM.

It gives IBM a leadership position in hardware, software combined with services all designed to further hybrid cloud for enterprises. It puts IBM into direct competition with multiple partner groups including ISVs like SUSE and Canonical, public cloud service providers like AWS and Google, and application providers like Oracle and SAP. Third, it puts IBM into even more direct competition with companies like VMware and Oracle.

IDC expects that open source companies like SUSE and Canonical may become acquisition targets themselves, and for IBM competitors to look to strengthen other relationships to bolster their own positions.

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