IBM and Red Hat close the deal — will it be red washing or blue washing?

On July 9 IBM held a 30-minute Q&A with industry analysts, led by Red Hat EVP of Engineering Paul Cormier and IBM SVP of Cloud and Cognitive Software Arvind Krishna. The discussion confirmed the overarching strategic benefits both parties see in the union while stressing the intentions to keep Red Hat vendor agnostic. Around three-quarters of Red Hat’s revenue is generated through its channel, suggesting Red Hat is viewed as a valuable and highly sought-after partner. Despite the fact that IBM and Red Hat executives continue to echo the necessity of maintaining all of Red Hat’s existing alliances, these relationships could come under review by the partners themselves now that the acquisition of Red Hat by IBM has been approved by regulatory boards globally and finalized.

Indeed, when queried about industry concerns that Red Hat would be “blue washed,” Krishna said, “[Blue washing] would be a bad thing for both [companies],” and suggested the exact opposite — that there could be some “red washing” of IBM that results, which has also been an opinion TBR has offered in various commentary as this deal moved toward closure.

Red Hat almost single-handedly commoditized the enterprise software space before taking aim to do the same thing with the platform layer through OpenShift. Commoditization is not something IBM necessarily has liked to see over the years at it rapidly eroded the transaction-oriented hardware segment of the industry as IBM pivoted to software and services. The developer community can now accelerate innovation through this open foundation layer, which is how Red Hat will remain autonomous from IBM. Red Hat’s best practices around subscription monetization of essentially free IP generated by the open-source community will likely be the best practices brought forward to red wash IBM as it moves further into the automated services arena, with Watson Anywhere and Blockchain Anywhere as two recent examples of these moves.

How can IBM scale Red Hat’s best practices?

IBM will bring its technical skills to the union to bridge the legacy world with the open-source world underpinned by Red Hat Enterprise Linux (RHEL), OpenShift and Kubernetes containers. Both Cormier and Krishna highlighted the breadth of IBM Services’ that can be brought to bear for enterprises looking to migrate the 80% of workloads that have yet to migrate to cloud, according to IBM. Through OpenShift, this migration can extend beyond just moving from legacy applications to one public cloud, to encompass nimble and secure migration to and between multiple clouds and on-premises instances.

Red Hat will still operate with multiple vendors while also maintaining the robust and expansive developer community that has been described, with some legitimacy, as almost a cult-like following. Indeed, it can be argued that this merger will in retrospect be viewed as a milestone event in the ongoing march to consumerize IT to simplify the technology side of business operations and focus more on business objectives than on the technical challenges. DevOps and security practitioners will have one platform cemented by Kubernetes containers to work within a true multicloud environment.

What tactical steps must be achieved to implement the strategic vision?

The teleconference had TBR analysts pondering many of the as-yet-unanswered questions that IBM and Red Hat stated will be addressed in the upcoming weeks. Principal among those TBR questions are the following:

  • How successful will IBM be at operating Red Hat as a stand-alone unit — an acquisition model it has yet to take on? Typically, acquired companies are blue washed, and it has been common to see executives from acquired companies resign. Will that be the case with Red Hat? Will Red Hat CEO James Whitehurst stay on, and better yet, will he succeed IBM CEO Ginni Rometty in coming years?
  • How will IBM Cloud Private (ICP) and OpenShift coexist? The move to multicloud with OpenShift underpinning the DevOps and security communities begs the question: How much emphasis will or should be placed on ICP? Will ICP be joined, or will OpenShift supplant that technology, with IBM Services maintaining the implementation based on trust from years of account control in the large enterprise?
  • What will be the development road map for IBM middleware assets? How will these assets align with, merge with, or remain distinct from the Red Hat portfolio?
  • How will IBM blend Red Hat best practices, technology and personnel into its own developer ecosystems, programs, and the IBM Garage method? This issue will be more of a cultural shift.
  • How can IBM and Red Hat increase share in the midmarket enterprise? Developer satisfaction will be closely monitored, but open platforms also mean access to cutting-edge technology by smaller enterprises. That go-to-market motion is radically different from the traditional enterprise motion where IBM has excelled for decades. In the era of multi-enterprise business networks, small enterprises and large enterprises interoperate more frequently through automated systems. IBM’s brand at times works against it within the midmarket, which perceives the offers to be too costly and likely too complex for its requirements. To gain scale with multi-enterprise business networks, this issue will be a critical area to improve upon.

All the right words were spoken, and the strategic vision appears sound. As always, the devil will be in the details, and those details will be laid out in the ensuing weeks and months around one of the most important acquisitions in IBM’s — and the industry’s — history.

Authors: Senior Analyst Cassandra Mooshian (cassandra.mooshian@tbri.com) and Senior Strategy Consultant & Principal Analyst Geoff Woollacott (geoff.woollacott@tbri.com)

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