By Bill Moran
We reviewed the announcement of the completion of IBM’s acquisition
of Red Hat via an all-cash ($34B) purchase of all outstanding shares. IBM now officially
owns Red Hat. Previous Red Hat stock owners have no say on the company’s future
direction. Unless, of course, they buy IBM stock. Even then, their influence
will be minimal. Why are these even worth mentioning?
Well, both companies are emphasizing (and staking a lot on)
this as a “partnership” and Red Hat operational “independence” not “ownership” as
the basis for the future direction of both companies. No doubt with all the
best intentions. Let’s examine some issues around this relationship.
A Board of Directors (BoD) is ultimately responsible to shareholders
for running a company. The Board selects the CEO and should support his/her strategy
for the company. We assume that IBM’s Board agrees with the announced strategy
as jointly presented by IBM and Red Hat.
Red Hat preserves its operational independence with their
deep commitment to open source products and development. Both companies agree
on this. IBM and Red Hat both view open
source, hybrid cloud as the future of the enterprise data center. Of particular interest, Red Hat’s ability to partner with IBM competitor’s
even against IBM, will continue. We fully expect that skeptical competitors will
want to test this. We do think IBM has a
reasonably good chance of making this relationship work.
However, execution challenges abound, e.g. impact on sales
reps & partners come immediately to mind. Management will need to
proactively address such challenges. Both have already revealed some details[1]
about partner relationships. Monitoring IBM’s stock prices will provide additional
insight into the success (or not) of the relationship.
As long as the markets favor the partnership, it will
continue as is. For instance, both believe only about 20% of enterprise
customers have completed the move to a hybrid cloud. If, or rather when business
conditions change significantly, say when 80% complete the transition, then the
IBM partnership with a very independent Red Hat will be reexamined. Other types of events may occur to drive relationship
changes. The IBM board and the IBM CEO
at that time will determine when and what it will be.
It is critical for Red Hat's credibility and continued faster-than-market growth that it be vendor neutral, while effectively leveraging its relationship with IBM. We think they will pull this off for the immediate future.Having attracted some ex-IBM staff to senior positions, all of whom appear to have fit nicely into Red Hat's operations, the future looks promising. Whatever happens, we'll be observing and commenting.
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