In 1994, a computer science grad from Carnegie Mellon published a new project: A Linux distribution he dubbed “Red Hat.” Twenty-four years later, Marc Ewing’s project—and the business spun around it—has been bought by IBM for $34 billion, making it the largest software acquisition in history.
While the deal isn’t expected to close until the second half of 2019, its announcement signals the arrival of IBM as a player in cloud computing. Amazon Web Service, Microsoft Azure, and Google Cloud Platform control too much of the market for IBM to win as a direct competitor, but its leadership is betting they won’t need to.
With Red Hat, IBM is buying software that will make it easier for enterprise teams to build on top of existing cloud providers. The bet indicates a shift for IBM, considering its history with the cloud—or rather, lack thereof.
In 2010, IBM’s then-CEO Sam Palmisano famously dismissed cloud computing’s future among enterprise companies, saying, “You can’t do what we’re doing in a cloud.” Since then, giants like Amazon, Microsoft, Google, and Dell have brought in billions through their cloud offerings, while IBM posted 22 straight quarters of declining revenue from 2012 to the end of 2017.
The acquisition is IBM’s attempt to find its footing in cloud computing after getting such a late start, but what remains to be seen is whether the future will work out the way it’s predicted. Will interfacing with the major cloud providers prove so cumbersome that companies pay IBM to do it for them? Or is IBM pouring billions into a service to fix a problem that doesn’t exist?
Other companies betting big on the cloud
• Microsoft buys GitHub for $7.5 billion: With cloud providers like Azure, AWS, and GCP becoming more and more identical, Microsoft is betting it can make Azure more popular among developers by integrating directly with GitHub.
• Salesforce buys API platform MuleSoft for $6.5 billion: While Salesforce’s cloud-based CRM is the industry standard, many of its users are older companies with legacy systems that can’t push their data to the cloud. With MuleSoft, Salesforce will unlock that data.
• Cloudera and Hortonworks’ $5.2 billion merger: Cloudera and Hortonworks are two data companies competing in a market slowly being eaten by companies like Google. By merging, the two hope to create “the industry’s first enterprise data cloud.”
