Why IBM purchased a $33 billion Red Hat?

By arvind |Email | Nov 1, 2018 | 9396 Views

A red hat that is worth $33 billion sounds expensive even for the rich out there. Not when the Red Hat they acquired is not a clothing accessory but an open source software and cloud computing firm. 28th of October, 2018 is marked as an important date in the books of IBM and maybe in the cloud computing market, this was the day when IBM revealed about the deal that it took over Red Hat. This deal has now given IBM the biggest slice of the cloud computing world, which costed them $33 billion as estimated by the 'New York Times'. 
What makes this a great acquiring for IBM is that, according to some experts the cloud computing industries annual revenue is supposed to reach $186.4 billion by the end of this year, and can cross $300 billion by the year 2032. 
Let me provide you with what is cloud computing before we go any further in this article. Cloud computing is the on-demand delivery of computer power, database storage, applications and other IT resources through a cloud services platform via the internet with pay-as-you-go pricing. Good for something that is going to see a growth of almost 62 percent in the next 3 year if not more. That is what I call great investment and think about your future.
The main driver behind the enormous growth of the cloud computing market has been the increasing adoption of the three models: software as a service (SaaS), infrastructure as a service (IaaS) and platform as a service (PaaS). Adopters have been diverse, ranging from individuals and small businesses to the world's biggest corporations.
In the last couple of years the market revenue has seen a shift almost 17 percent of the revenue in market from middleware, business process services, infrastructure and application have shifted to cloud. It is supposed to increase to almost 28 percent by the year 2021. 
With great growth comes great opportunities and that applies to all companies be it the small ones or big ones. 
Here are four reasons that became the reason for IBM's purchase of Red Hat
1. IBM's chance to run the same race
Ina recently conducted computing providers, IBM dropped down to No. 6 in the rankings, putting them far behind the big three of: Amazon's AWS, Microsoft Azure and Google Cloud Platform.
2. IBM's gambling in the casino of hybrid cloud
IBM is playing a pretty big gamble by acquiring Red Hat rather than moving fully to public cloud solutions like AWS, many large businesses will instead adopt hybrid cloud solutions. Typically, a hybrid cloud approach is depended upon a blend of private cloud computing in which technology is deployed in-house, often using Red Hat Linux in tandem with a public cloud provider like AWS, Azure or Google Cloud. IBM significantly lacking in those big three in market share, but is looking to cover the ground with the Red Hat purchase. Such a hybrid cloud approach is appealing to companies which are scared to trust their most sensitive data to a third-party, but recognize the cost and operational benefits of hosting some vital services, such as email and customer relationship management in the public cloud. IBM is betting heavily that these concerns, among others, will make hybrid cloud solutions appealing to a substantial number of customers; and the Red Hat acquisition better positions the information technology company to capitalize on that bet. IBM CEO Ginni Rometty put it this way, according to Business Insider: "IBM will become the world's No. 1 hybrid cloud provider," she predicted, "offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses."
3. IBM's another gamble played on open source
Wired noted that many might think it unusual that IBM paid $33 billion to acquire a company that "gives away its primary product for free." The source code for Red Hat's most popular product its Red Hat Enterprise Linux operating system can be downloaded and used without charge. However, Red Hat generates approximately $3 billion in revenue a year from companies using its products and paying for support. IBM has long been a believer in and contributor to open source software projects, particularly Linux. Wired also noted that, "Open source was once a fringe, idealistic movement in software, but it's now a core part of how big companies operate, from internet giants like Google and Facebook to Walmart and ExxonMobil."
4. IBM's declining revenues
Since its founding in 1911, IBM has enjoyed many successes, and was considered "the most admired American corporation" for many years during the 1970s and 80s, as Fortune reported. The internet era has not always been kind to IBM, however: In 1993, the company posted what at the time was the second biggest ever quarterly loss in US history, in 1993. 
More recently, IBM reported disappointing third quarter 2018 results. In recent years, IBM increasingly wagered on Watson, its artificial intelligence division, to drive growth, but Watson, "has not performed as well as IBM had hoped and investors were losing their patience," as reported by TechCrunch. In acquiring Red Hat, IBM hopes to position itself as a much bigger player in the burgeoning cloud computing industry. The same TechCrunch article noted that the move may be seen as a return to focusing on "the enterprise software and services business that has always been [IBM's] core competency."

Source: HOB