On October 28th IBM announced its intention to acquire Red Hat. At $34 Billion, this is the largest software acquisition ever. So why would IBM pay such a large amount of money for Red Hat? Not surprising, there were quite a few negative comments from parts of the Open Source community. However, there is logic behind that intended acquisition.

Aside of the potential it holds for some of the strategic fields of IBM such as AI (Artificial Intelligence) and even security (which is amongst the divisions of IBM showing the biggest growth), there is an obvious potential in the field of Hybrid Cloud as well as for DevOps.

Red Hat has for a long time been a company that is much bigger than just a Linux company. When you look at their portfolio, Red Hat is strong in middleware and technologies supporting hybrid cloud environments. Technology stacks like JBoss, Ansible, OpenShift or OpenStack are well-established.

Red Hat has also been a longstanding supplier preferred by enterprises. They have a strong position in growth markets that play an important role for businesses, Cloud Service Providers (CSPs), and obviously for IBM itself. Red Hat empowers IBM to deliver better and broader services to its customers and strengthen its role as a provider for Hybrid Cloud and DevOps and thus its competitive position in the battle with companies such as AWS, Microsoft, or Oracle. On the other hand, IBM allows Red Hat scaling its business, by delivering both the organizational structure to grow and a global services team and infrastructure.

From our perspective, there is little risk that Red Hat will lose a significant share of its current business – they are already an enterprise player and selling to enterprise customers, and IBM will strengthen not weaken them.

As with every acquisition, this one also brings some risk for customers. There is some overlap in certain parts of the portfolio, particularly around managing hybrid cloud environments, i.e. Cloud Foundry and OpenShift. While this might affect some customers, the overall risk for customers appears to be limited. On the other hand, the joint potential to support business in their Digital Transformation is significant. IBM can increase its offerings and attractiveness for Hybrid Cloud and DevOps, fostered by strong security and with interesting potential for new fields such as AI.

The only question will be whether the price tag of Red Hat is too high. While there is huge potential, the combined IBM and Red Hat will still need to monetize on this.

Read as well: IBM Acquires Red Hat: The AI potential