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October 29, 2018updated 30 Oct 2018 11:29am

Now IBM’s Bought Red Hat, Who Does Google Buy?

Could Alphabet be eyeing Atlassian or Pivotal after Red Hat was snapped up?

By CBR Staff Writer

Sacha Labourey, the CEO of Cloudbees, saw Red Hat’s acquisition coming in January.

He just got the buyer wrong.

Making his predictions for 2018, the Red Hat veteran on January 10 spotted a buyout looming on the horizon.

But Labourey, a former GM of Red Hat’s middleware division, thought it would be Google making the move.

Close, but no cigar.

In a Medium blog on the prediction today, he emphasised: “This outcome [a Red Hat buyout] was inevitable for two reasons: The first is that Red Hat owns amazing assets for this cloud era, has great developer love and also provides access to pretty much all CIOs on the planet.

“From the classic Red Hat Enterprise Linux (RHEL) and JBoss to the modern OpenShift (~Kubernetes) and Ansible, Red Hat owns key assets to provide enterprises a smooth ride from the current IT to the public cloud era. Public cloud vendors might operate the best destinations, but if there is no path to get there, it is not worth much. As such, Red Hat acts as a fantastic gateway to the public cloud.”

Open Source Monetisation is Getting Harder…

IBM Red Hat strategyHe added: “The second reason is less rosy. Red Hat has a unique business model crafted in the late 90’s/early 00’s when open source lived in a much stronger ideological environment. Red Hat has a pure open source business model, which means that *anything* they do is available in open source. Monetisation, in the form of yearly recurring subscriptions, happens on top of those free assets.”

“While this has made it possible for Red Hat to reach a venerable ~$3B in revenue, this is a ‘harder’ business model as it can be hard to justify a big premium when all of your value is otherwise freely available. If you compare Red Hat’s growth to VMware for example, a comparable player in the infrastructure market, VMware reached about 3x Red Hat’s size in less time.”

IBM on Strategy

On a conference call this afternoon, IBM CEO Ginni Rometty emphasised the sheer value of open source and “openness” in a market increasingly characterised by fear of vendor lock-in.

She told analysts: “This cloud battle is going to be open versus proprietary. You’re seeing this happen. People don’t want lock-in; they want portability. You’re already seeing people seeing the consequences of being locked into clouds and they don’t want that.”

She added, in response to series of questions from analysts: “The revenue synergies are that we can scale Red Hat everywhere; our own assets, from AI to middleware and cloud private can be cross-sold with Red Hat. Then there’s services: people need help orchestrating across multiple clouds. Getting data together across secure environments is our no. one client concern. Clients need help!”

“We have the most SAP and VMWare in our cloud… We’ve built the foundation to be ready for this moment… and we have 80 percent of the cloud market to go!”

She affirmed that IBM will also put services like Watson on the Red Hat stack.

IBM Red Hat strategy Whither Google?

With Red Hat off the market, what are Google’s acquisition options meanwhile?

Computer Business Review asked Sacha Labourey to update his prediction…

He told us: “The most obvious one [potential acquisition target] is Pivotal, but I don’t have visibility into how VMW+EMC+DELL could stop the deal from happening (and whether they would). Atlassian could be interesting because of their assets, used throughout the DevOps toolchain (JIRA), but they wouldn’t bring an enterprise sales force capability.

He added: “Another option would be for Google to initiate a roll-up of some of the leading DevOps companies with pre-existing credibility among enterprises. There’s a handful of companies that all own a key piece of the DevOps infrastructure that ALL companies are using (i.e. Docker containers, artifactory repository and Jenkins). On that front, it is still unclear whether the GitHub acquisition was a one-off or the start of a DevOps market roll-up…”

IBM Red Hat Strategy: Final thoughts?

Research house GlobalData’s Charlotte Dunlap, Principal Analyst, Application Platforms, told Computer Business Review: “IBM and Oracle may be adopting OSS technology from OpenStack to CF further up the stack, but no one’s got the following of the developer community like RH for its initial commitment to OSS (except perhaps the Spring developers stemming from Pivotal on a smaller scale).”

She added: “Once these hybrid cloud set ups are in play and enterprises move into the digital transformation phase which converts their IT and data centers into modern app development/deployment architectures, operations teams (DevOps) are pinning a lot of hopes on OSS technologies, such as Kubernetes (container orchestration), Istio (microservices), and Knative (serverless) to ease the complexity of moving app workloads into production. Application platforms providers like RH having an advantage here carries a lot of weight among enterprises.”

See also: IBM Swoops on Red Hat in $34 Billion “Game Changing” Deal

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