On October 28, 2018, IBM and Red Hat software together announced that IBM would acquire Red Hat, the world’s leader in open-source technology, for a staggering $34 billion. Big Blue’s interest in the Linux open-source operating system isn’t something new.
Twenty years ago, IBM invested $1 billion in the free operating system that had begun as personal project by Linus Torvalds, a graduate student in Helsinki, Finland. Torvalds created his Linux alternate for the UNIX operating system back in 1991.
Red Hat, Inc., is a multinational corporation based in Raleigh, N.C. The business is built around the enterprise Red Hat Linux operating system with supporting middleware and virtualization products. The company has annual revenues listed at $2.9 billion (2017). It’s also credited with being second only to Intel as the most important corporate contributors to the development of the Linux kernel. A number of major Linux distributions include the number one platform for smartphones, Android, and Google’s Chrome OS. The source code for Linux is open-source, free for anyone to use or work on, and it’s at the heart of Android, much of the Internet, and the IoT (Internet of Things) as well.
The cash paid by IBM will go toward the purchase of all the issued and outstanding common shares of Red Hat (NYSE: RHT). Owners of Red Hat stock experienced quite a lurch in share price from $116.69 two days before the announcement and $172.00 the day after.
GROWING IBM’S CLOUD
IBM’s chairwoman, president, and CEO Ginny Rometty explained their basic rationale for the acquisition. For IBM it’s about the cloud. Rometty explained, “IBM will become the world’s number one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”
She continued, “Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs. The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.”
Arvind Krishna, senior vice president, IBM Hybrid Cloud, posted a Q&A offering his perspective. As to why Red Hat and why now, he explained the advantage of an open system for the IBM clients still at 20%:
“To get this full business value from their cloud investments, and to move real business applications to the cloud, they need to be able to move and deploy applications and services between their multiple cloud environments. Today they are hesitant to do that because the proprietary nature of the cloud market makes it very difficult, because of security concerns in a multi-cloud environment, and because of inconsistent cloud management. Red Hat and IBM are best-in-class hybrid cloud providers, and together, we will help clients address this issue, providing a path for all business applications to the cloud, and enabling our clients to unlock the full value of the cloud.”
Krishna also was careful to point out that IBM is dedicated to preserving the very successful open-source ethos of Red Hat. “We are committed to retaining Red Hat’s culture, leadership and practices.” He also pointed out the 20-year relationship between IBM and Linux, and specifically the partnership with the Red Hat company.
Obviously, one of the oldest computing giants, built on proprietary enterprise offerings, has seen the messages written on Big-Data walls. A quick summary of the open-source credo was posted just last month in The Street by Red Hat’s Jim Whitehurst: “The big secular driver of Linux is that big data workloads run on Linux. AI workloads run on Linux. DevOps and those platforms, almost exclusively Linux. So much of the net new workloads that are being built have an affinity for Linux.” Whitehurst and Red Hat have been brought in-house to create hybrid solutions for IBM’s cloud.
Richard Gall, co-editor of the Packt> developers’ resource website, expressed shock on hearing about the IBM Red Hat nuptials. “It took many people by surprise,” he writes, “because it signals a weird new world where the old guard of tech conglomerates—almost prehistoric in the history of the industry—are revitalizing themselves by diving into the open-source world for pearls.”
He then offered several reasons why IBM’s decision makes sense. Among cloud services providers, IBM is third or possibly fourth, behind Amazon’s AWS, Microsoft’s Azure, and Google. They need to do something, and Gall points out that Rometty’s opening paragraph in the press release begins with the reason for the purchase: “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market.”
Since the age-old IBM approach of build-it-yourself and write the software that you will license has settled the company uncomfortably in third or fourth, why not go all-in on open-source solutions?
From Gall’s perspective, “It ultimately comes down to expanding what businesses can do with cloud—and bringing an open-source company into the IBM family will allow IBM to deliver much more effectively on this than they have before. AWS appears to implicitly understand that features and capabilities are everything when it comes to cloud—to be truly successful, IBM needs to adopt both an open-source mindset and toolset to innovate at a fast pace.”
And what better place to begin the migration than at the top of the open-source community with a company like Red Hat?
It’s not just IBM who is embarking on this shift away from closed, proprietary, expensive solutions that aren’t very agile to open-source systems and applications. Gall points to another merger involving open-source and another computing giant, Microsoft. Coincidentally, on the same weekend of the Red Hat announcement, GitHub officially became part of the Microsoft ecosystem.
GitHub is the world’s leading source code management platform, and, according to Microsoft, “is home for modern developers and the world’s most popular destination for open-source projects and software innovation.” The annual survey of its developers, called “The State of the Octoverse,” offers the following numbers “to celebrate a year of teamwork across time zones, programming languages, and billions of lines of code.”
- 1 billion contributions and counting.
- 31 million developers building on GitHub.
- 1 million organizations, 40% more than last year.
- 96 million repositories.
Added to the developers’ activities buzzing on GitHub, to date, 1.1 million students have learned to code with GitHub.
Of the top ten open-source projects on the site, Microsoft appears as number one (Microsoft Visual Studio Code) and number five (Microsoft Azure Docs). Anyone can sign up to contribute their ideas to these projects.
Microsoft paid $7.5 billion in Microsoft stock to purchase the software development platform. The announcement, back in June 2018, explained the company’s reasons for its interest:
“Microsoft is a developer-first company, and by joining forces with GitHub we strengthen our commitment to developer freedom, openness and innovation,” said Satya Nadella, CEO, Microsoft. “We recognize the community responsibility we take on with this agreement and will do our best work to empower every developer to build, innovate and solve the world’s most pressing problems.
GitHub will retain its developer-first ethos and will operate independently to provide an open platform for all developers in all industries. Developers will continue to be able to use the programming languages, tools, and operating systems of their choice for their projects—and will still be able to deploy their code to any operating system, any cloud and any device.”
You can read the full report on the GitHub site here.
This snapshot of the major contributors on the GitHub site provides an insight into the partnership between the two forces once described as opponents in Eric Raymond’s classic The Cathedral and the Bazaar—Musings on Linux and Open-source by an Accidental Revolutionary. In the book, the cathedral is the proprietary culture and the bazaar is an open-source free market where everyone can be involved in decision making.
A glance at the major players in the GitHub booth at the bazaar is revealing. Economic engines are changing, and three powerful forces—the Internet, the cloud, and open-source products like Linux—are turning new, massive flywheels.