Cloud Leaders Shrug at IBM’s $34B Red Hat Deal

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it has been viewed as a sort of Switzerland in enterprise cloud technology—a “neutral vendor” of open-source software tools, he says. It won’t be easy, but he thinks the key to this deal for IBM could be harnessing Red Hat’s culture and using it as a catalyst to enhance the whole corporation’s culture.

“That is the only justification I can see for that valuation,” Crenshaw says.

After the deal closes, Red Hat will operate as a distinct unit within IBM’s hybrid cloud business, and IBM says it intends to preserve Red Hat’s “unique development culture” and “the independence and neutrality of Red Hat’s open-source development heritage and commitment.” The question is whether that’s how things play out.

“It’s going to be challenging to maintain that neutrality or the perception of that neutrality now that they’re tied to IBM,” Crenshaw says.

That could open the door for other independent cloud management firms “to step in and fill this heterogeneous and trusted advisor role,” says Dan Phillips. He’s a veteran tech executive who co-founded Boston-based cloud management and analytics startup CloudHealth Technologies, which was recently acquired by VMware (NYSE: VMW), a large seller of virtualization software and cloud tools and services. Phillips’s candidates to fill the void left by Red Hat include Nutanix (NASDAQ: NTNX), ServiceNow (NYSE: NOW), New Relic (NYSE: NEWR), Datadog, and, of course, VMware. (Phillips was CloudHealth’s chairman at the time of the acquisition, but he says he no longer holds a position there or at VMware, and he doesn’t own stock in the combined company.)

Phillips says he thinks the Red Hat purchase is a “great deal” for IBM, even if the final verdict ends up being that Big Blue overpaid.

“It feels like IBM woke up,” Phillips says in an e-mail message. “It makes them relevant in the cloud management market. I hope it’s a great deal for Red Hat and the market in general.”

One effect of the deal could be more mergers and acquisitions involving open-source software companies, Crenshaw says, citing Suse and Canonical as two firms that might receive interest from suitors. It’s already a banner year for open-source software deals, Skok points out—see Microsoft’s $7.5 billion acquisition of GitHub, Salesforce’s $6.5 billion purchase of MuleSoft, the $5.2 billion merger of Cloudera and Hortonworks, and Elastic’s initial public stock offering.

But beyond more deal-making, Crenshaw is skeptical the IBM-Red Hat tie-up will have significant ripple effects, at least for now.

“In the short and medium term, it’s hard to see that this changes the game much,” Crenshaw says. “In the long term, there’s a possibility.”

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