Sunday, November 4, 2018

First Take: IBM's Red Hat Acquisition - Is it too late?

Red Hat logo. Source: Wikipedia

According to Business Insider some of the key points are:

1. Red Hat will join IBM's Hybrid Cloud Team as a distinct unit preserving the Independence and neutrality of Red Hat's Open Source development heritage and commitment, current products portfolio and go to ,market strategy and unique development culture. 

My Take: RED Hat will continue selling its Linux Operating System and services to IBM's Cloud competitors such as Amazon, Microsoft and Google.

2. IBM will remain committed to Red Hat's Open Governance, Open Source contributions, participation in the Open Source Community and development model.

My Take: IBM is also committed to Open Source and its Cloud is based on Open Stack. with IBM's long tradition of Open Source usage and contributions it is easy for IBM to preserve Red Hat's Open Source Commitment. 

3. IBM and Red Hat also will continue to build and enhance Red Hat's partnerships including those with major cloud providers, such as Amazon Web Services, Microsoft's Azure, Google Cloud, Alibaba and more in addition to IBM Cloud.

My Take: IBM will provide services and products to its Cloud competitors. 

4. Red Hat will continue to be led by Jim Whitehurst and Red Hat's current management team...  

My Take: Red Hat's key employees will continue to work for IBM. 

5. " IBM will become the world's number 1 Hybrid Cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses" Ginny Rometty, IBM chairman and CEO, said.

My Take: IBM's target is the Hybrid Cloud market. Its strategy is to be the leading provider of that market. 

I cited only the key points which are relevant to this post's context. 

Why IBM needs to change?

More than a year ago I wrote a post titled: Vendors Survival: Will IBM Survive until 2027?

My conclusion was that IBM will probably survive, however the company's position was not as good as it was few years ago. 
IBM still earning from old Business Lines but is failing to dominate any of the the new emerging technological markets.

After 20 quarters of declined earnings Warren Buffet, a significant shareholder, sold his IBM shares.

Which of the emerging market best fits IBM?

I concluded that Cloud Computing was the best fit for IBM among the emerging markets. Unfortunately for IBM, Amazon was more innovative and is this market leader. 

Microsoft with its Azure and Satya Nadella's Cloud First was also more innovative.    

Google was the third vendor in  market share. IBM was fourth, but Alibaba leapfrogged it. 

Is the Cloud Market a single Market? 

The answer is no. There are three different markets:

1. The Public Cloud
The Public Cloud is a promise of a new model without Information Technology Infrastructure. However, there are many obstacles. Some of the obstacles are depicted in my post: Public Cloud Core Banking: Vendors Hype or Short Term Reality

This Market is dominated by Amazon. Microsoft owns the second larger Market share followed by Google.  Microsoft's market share is a lot larger than Google's share. Google is followed by Alibaba and IBM. 
It looks like IBM missed the opportunity to lead this market and it is too late for it to become this market leader. 

The market is based on commodity Operating Systems i.e. Windows and Linux. Red Hat is the leading Linux vendor.

You can read the third key point and My Take on the first key point and realize that IBM will continue to sell Red Hat Linux to its competitors.
It seems that IBM understands that the acquisition will not promote IBM as a leader in this market.

2. The Private Cloud
According to Forrester Research, Next Generation of of Private Clouds "will use Hybrid Infrastructure"
Private Clouds are used by Large Enterprises. According to Forrester's survey in 2013, "67% of responders thought that access to Mainframe Data is critically important or very important in Cloud environments".

This market is not clearly defined. Forrester Research provides three different definitions of this market.

According to all definitions IBM is a significant player in this market and could become the leader of this market in the Next Generation, which will include proprietary platforms. 

This market is an improvement to a traditional market. Nothing to write home about.

3. The Hybrid Cloud
This is a combination of Public Could or Public Clouds and a Private Cloud. It is less elegant and less promising model in comparison to Public Cloud but it is more realistic model, for the following years.
It is a growing market.

The Hybrid Cloud is the "battle field" of the Cloud Computing vendors. 
Ginny Rometty, IBM chairman and CEO, is quoted in the fifth key point. She states that IBM's strategic goal is to become the leader of that market. 

Is it too late?

Could the combined forces of IBM and Red Hat and the Open Source Cloud model realize this strategic goal? It may be too late.

Could the dual strategy of coopetition by selling Red Hat's solutions to IBM's competitors differentiate IBM's solution based on Red Hat's Linux from the comptitors' solutions also based  on Red Hat's Linux?

If IBM would acquire Red Hat few years ago, it would not need to  pay 66% above Red Hat market share value. 

If IBM could be more innovative before the leading vendors emerge the probability of accomplishing this strategic goal would have been a lot higher.

No comments:

Public Cloud Core Banking: Hype or Reality? - Revisited

  More than 4 years ago I was asked if Public Cloud Core Banking is a Hype or a Short Term Reality? If you had read the post, you would prob...