IBM Acquires Red Hat — What This Means for Open Source

IBM has announced their intention to acquire Red Hat in a deal valued at $34B USD. The deal has already been approved by both company’s boards and is subject to regulatory and shareholder approvals.

The deal would be the largest software acquisition ever and third largest technology acquisition behind the Dell / EMC and Avago/Broadcom deals.

The acquisition represents a healthy 11x multiple on 2017 Red Hat revenues, which is very impressive for a 21% growth company.

IBM acquires Red Hat in 3rd largest software acquisition ever

In their published remarks, IBM and Red Hat position the acquisition as a move for IBM to become the largest infrastructure provider for the hybrid cloud, angling for IBM to be the primary supplier to public clouds with their intention to develop deeper partnerships with vendors like Microsoft, Google, and Amazon.

Last year, my last company, Codenvy, was acquired by Red Hat, and during my short tenure there, discussions of Red Hat being acquired were broadly discussed with Google, Microsoft and IBM as likely acquirers.

Open Source Is the Biggest Theme In Technology This Year

Open source has been the biggest theme in technology this year.

Prior to IBM’s purchase of Red Hat, three of the biggest tech deals of the year were:

1. Microsoft’s $7.5 billion purchase of GitHub, a code-sharing service largely adopted by the open source community
2. Salesforce’s $6.5 billion acquisition of MuleSoft, whose technology is competitive to WSO2’s — responsible for weaving disparate software applications, data and devices through integration.
3. Cloudera and Hortonworks, both working around the open source Hadoop technology, agreed to merge in a $5.2 billion deal.

It is becoming increasingly clear that open source is the modern foundation for software infrastructure. Open source’s community-driven approach builds software faster and with fewer issues.

IBM Will Be a Drag to Red Hat

IBM’s rich, long history and complicated organizational structure will ultimately injure what makes Red Hat special.

IBM’s bureaucracy places a fundamental orientation toward being commercial- and a patent-first mindset towards software innovation. While IBM has participated in significant open source projects, it’s always been with a me-first mindset that works to exploit the positive advances of the open source upstream community. Open source, at its core, advances when the commercial vendors that participate do so in a manner that shows selflessness by investing in the upstream’s goals, even if those goals conflict with the commercial interests of the vendor.

Red Hat has a policy in their employee manual that explicitly gives their employees to act in the best interests of upstream open source projects, even if it’s counter to Red Hat’s interests. There will be no form of retribution and limited management oversight. Red Hat influences open source by its choice of how many people they fund to work in different areas, not in charting the direction of those projects themselves. Red Hat makes a solid distinction between giving upstream projects independent direction apart from the commercial forks that imprint their view of what the product must be.

IBM, on the other hand, has a history of engaging within upstream projects to steer them towards corporate self interests. Even if Red Hat is left to autonomous operation for a year, will IBM be able to resist their historical and institutional attitudes towards commercialization for the projects that Red Hat drives? It’s hard to see this happening, and the value of open source slowly erodes if your employee participants are not given latitude to chart its future course.

WSO2’s Will Become the 5th Largest Pure Open Source Software Company

Earlier this year, WSO2 became the 7th largest pure open source software company by revenues. With the amazing traction that open source software is demonstrating in the market, and our year on year growth of 50%, WSO2 is primed to become the 5th largest open source software company by revenues. Side note — right after publishing this blog, Forrester announced that IBM and WSO2 were named LEADERS in API Management for 2018.

IBM’s acquisition will have a lasting impact on our business:

1. IBM will kill the Linux spirit that lives within Red Hat — potentially opening the door for distributions other than CentOS and Fedora to gain wider acceptance.
2. IBM’s commercial- and patent-first culture will erode Red Hat’s open source and innovation advantages.
3. This acquisition is a disaster for the Kubernetes and Docker communities as important competitors with differing views will be forced to rationalize their offerings. We expect OpenShift to become the dominant brand for Kubernetes.
4. IBM and Red Hat’s Websphere and JBoss Fuse, respectively, integration architectures are aging and not ready for cloud-native, agile approaches demanded by fast-moving, large scale systems. WSO2’s microservices architecture and integration agile platform was designed ground up to address the needs of dynamic and container-based architectures.
5. This acquisition is a loss for the mature, but essential, Java market where Red Hat and IBM are two of the top contributors. Their consolidation will lead to few innovations and advancements on the programming language running most enterprises around the globe. We hope and expect that the trend towards programming languages with distributed architecture constructs, like the investment we are making in Ballerina, will gain even faster acceptance.
6. This acquisition is a fantastic validation of open source software, but potentially damaging for customers if IBM moves Red Hat toward their traditional closed and proprietary model.
7. The rate of innovation will slow within IBM and Red Hat. IBM’s history of blue washing technology, polar opposite models, and diverse cultures will create challenges for how the two vendors rationalize overlapping and competitive offerings in API Management, Kubernetes, container, OpenStack, programming language, and ESBs. Customers will want to know the plans for roadmaps for both IBM and Red Hat portfolios.9.

More Validation for WSO2 and Open Source

There is nothing more exciting than working at WSO2 and open source integration right now. We are sitting in the middle of $75B of market activity driven by open source software. And now that integration is going to be 50% of all software development by 2020, open source integration is turning into the heart of all open source.

With WSO2 now the only pure open source integration vendor, we expect big things for the WSO2 Integration Agile platform and the growth of our community. We are hiring extensively, and if you are interested, please send me a note at tyler@wso2.com. Also, for those seeking community and commercial partnerships around open source, please check out our partner programs which span technology, delivery, and reselling. We’ve signed up more than 20 partners in the past quarter and ready to engage in many more.