IBM Is Taking A Major Move To Hybrid Cloud By Acquiring Red Hat For $34B

IBM shows it ambition in Hybrid Cloud by acquiring a cloud business and open-source Red Hat, the biggest distributor of Linux (a very famous open source software operating system along with Windows), at the price of $34 billion.

The acquisition, which was announced on this Sunday, is the latest move among many big companies in software seeking for market share in the fast-growing and high-demand cloud computing market.

In June, Microsoft made the move as they acquired GitHub, a very popular site among developers as one of the biggest platform for sharing code, at the price of $7.5 billion.

Microsoft acquired GitHub - very popular code-sharing platform for $7.5 billion

By acquiring Red Hat, the company is attempting to position themselves as a trusted corporation that is attempting to get a foot on the cloud, but in the form of a dependant on a big cloud supplier.

In the cloud model, developers will write apps that can run on a remote data center. With cloud computing, you can not only lower the cost for your business but also develop your new software business at a faster rate.

IBM is ahead of any other business in a hybrid approach to cloud computing. It means some very important applications and data will run on a cloud technology inside data centers of a company, while other tasks will run on the tech companies’ clouds.

The current major cloud platforms are Google, Amazon, and Microsoft. There are many complaints from businesses claiming that those three suppliers include the proprietary technology that prevents them from switching from one supplier to another.

Cloud service is basically the competition between three tech giants: Amazon, Google and Microsoft.

The strategy of IBM is supplying both software and also hardware for companies that want to build private clouds for their own, and IBM also offers public cloud service.

Many analysts believe that IBM may struggle in competing with large-scale cloud corporations like Microsoft, Google and also Amazon which have already been investing billions of dollars to keep building more data centers.

However, both Red Hat and IBM are having a solid belief that they are in a good position to get on the top of cloud market and they claim to offer businesses an easy transition to cloud without being stuck with a single cloud supplier like Microsoft, Google and Amazon are rumored to do.

Both companies reveal that they are planning to offer their technology to link in-house cloud of a company and many third-party clouds.

“Enterprises are moving to the cloud but 80 percent of them are not there yet,” stated by Arvind Krishna - a senior vice president of IBM that in charge of the company’s hybrid cloud offerings. “We can provide a much easier path to manage and make secure both private clouds and links to multiple public clouds.”

Founded in 1993, Red Hat has managed to build a very profitable business. Last year, their revenue figure for open-source software is $2.4 billion, mostly from Linux.

Linux - a popular open-source software operating system is the most profitable business of Red Hat 

As you may know, open source software is distributed to everyone and programmers can modify it under some particular rules.

The company has also expanded their business by offering quality control, technical support, a forum and also software tools for collaboration and they obviously charge a subscription fee.

Linux is currently a favorite operating system to use in cloud computing. Paul Cormier, the president for technologies and products of Red Hat stated that “for most corporations, hybrid cloud is the only practical way to the cloud.”

By linking with IBM, he believed that it will probably accelerate the progress of Red Hat in corporate cloud migrations market.

Red Hat is going to be a part of IBM but in the form of a distinct unit within the IBM’s Cloud team as IBM wants Red Hat to preserve its neutrality and independence in developing open-source.

The acquisition offer is $190 per share in cash which is 60 percent higher than the Friday’s closing price of Red Hat, only $116.68 per share.

A person who was close the acquisition deal explained that the over price is due to the strong cash flow and high growth of Red Hat.

Both companies’ boards of directors already approved IBM’s deal and it will probably be closed in mid-2019. Lazard, Goldman Sachs, and JPMorgan Chase were the firms that advised IBM on this deal while Morgan Stanley and Guggenheim were the ones responsible for advising Red Hat.