How IBM's $34B Red Hat Acquisition Will Affect B2B Buyers Everywhere

IBM’s decision over the weekend to acquire open source software provider Red Hat for more than $34 billion dollars will potentially create a major competitor to Microsoft and Amazon Web Services in the cloud computing space while possibly triggering a wave of other M&As among other B2B technology vendors, experts suggested.

Armonk, N.J.-based IBM told analysts Red Hat will become a distinct unit as part of its team focused on “hybrid clouds,” which use a mixture of private cloud services that a company runs on its own servers and those of a third-party provider of software and IT infrastructure. The deal comes only a few months after Microsoft bought GitHub, a popular online repository of open source code, for approximately $7 billion.

Today, many organizations that want to run IT products and services via cloud computing tend to look at Microsoft’s Azure or AWS’s Elastic Computing services. IBM executives suggested the purchase of Red Hat, which owns the most popular distribution of the Linux operating system, would make it the No. 1 cloud provider. Early reaction from tech industry experts, however, suggested Big Blue is also seeking new ways to grow beyond its Watson artificial intelligence (AI) technology.

Probably the best backgrounder on IBM’s strategy to date, and the potential around the Red Hat deal, is available in a long post from Ben Thomson, an independent analyst who publishes on his blog Stratchery.

“This is the bet: while in the 1990s the complexity of the Internet made it difficult for businesses to go online, providing an opening for IBM to sell solutions, today IBM argues the reduction of cloud computing to three centralized providers makes businesses reluctant to commit to any one of them,” Thomson wrote, expressing doubt that IBM will be as successful in the hybrid cloud space. “Of an enterprise is concerned about lock-in, is IBM really a better option? And if the answer is that ‘Red Hat is open’, at what point do increasingly sophisticated businesses build it themselves?”

The Beginning Of Martech M&A Mayhem?

While CIOs and other IT decision makers may explore their options as the IBM-Red Hat merger is completed, financial industry analysts suggested the deal could prove a catalyst for many other acquisitions. This includes vendors such as Workday, Okta, MongoDB and many others.

“Category-leading software companies such as ServiceNow, Splunk, Tableau and Workday, along with converged infrastructure company Nutanix, could wind up getting taken,” CNBC quoted analyst firm Raymond James as saying. Experts at J.P. Morgan, meanwhile, listed up to 16 other possible targets that could be bought in Red Hat’s wake.

On Medium, Cloudbees co-founder and CEO Sacha Labourey suggested that the cloud wars have only begun. Google, after all, has been increasingly focused on B2B with its G-Suite of productivity tools, and the potential to compete on the same level as Microsoft, AWS and now IBM could make things interesting for the search engine giant.

“Unlike IBM, Google does not need more cool technology or more developer love,” Labourey wrote. “What Google is missing is a true enterprise trait added to their DNA.”

IBM said that besides keeping Red Hat’s headquarters, it will also maintain its “brands and practices.” Among other channels, one of Red Hat’s main content marketing programs has been The Enterprisers Project, a collaboration with the Harvard Business Review aimed at the CIO community.