back to article IBM sits draped over the bar at The Cloud or Bust saloon. In walks Red Hat

IBM has spent a good long spell slumped at the bar in the last chance saloon for businesses figuring out how to make a mark in the public cloud arena. The proposed buy of Red Hat is supposed to change all that. The audacious $34bn bid for Red Hat last night equates to a $190 per share offer, a 63 per cent premium to the open- …

  1. steelpillow Silver badge

    Clouded vision

    Was maybe inevitable. RedHat may be built on Open Source but its business has long been run by beancounters for beancounters. That was what gave it its stellar rise to Fortune 100 all those years ago and now, in the dawn of the Cloud, drives it into the arms of a big investor.

    The RedHat business model - we sell services, and here is a free software install to get you going - was fine as long as the client needed services built on that software. But now the client needs them built on the cloud, and that doesn't fit on a CD.

    1. ST Silver badge
      Stop

      Re: Clouded vision

      > The RedHat business model - we sell services, and here is a free software install to get you going

      Bullshit.

      For starters, RHEL is not free. It's pay-to-play. Fedora is free, but that's not what RedHat's customers run.

      RedHat's business model was just fine. They've been very profitable for many many years.

      Also, RHEL doesn't even fit on an install CD.

      This has nothing to do with Cloud. It has everything to do with corporate financial engineering and changing IBM's headlines in the news. After 6 1/2 years of driving IBM into a ditch, Ginni Rometty is now a bold visionary. She bought RedHat with a credit card from JPMorgan.

      Witness the chorus of social media influencers gushing over this deal. No-one else is.

      Wanna know what's going to happen to RedHat at IBM? Look no further than what happened to Solaris at Oracle. Remember Solaris?

      1. Anonymous Coward
        Anonymous Coward

        Re: Clouded vision

        "The RedHat business model - we sell services, and here is a free software install to get you going...|

        Fuck me, someone needs to tell our accountancy team because our RHEL licensing bill last quarter was positively fucking titanic.

        Red Hat sell software. They're not actually that good at selling software. It sells well because it's, generally, good stuff that does a good job. They're *definitely* not a services-centric organisation. IBM are good at sales and, to many a company's eternal regret, very good at shifting very sticky services. Why do you think Red Hat signed up for the deal?

      2. steelpillow Silver badge

        Re: Clouded vision

        @ST: The free edition of RHEL is called CentOS. The two teams hammered out a stable working relationship a long time ago.

        The reason you pay for RHEL is because it is actually a support contract (with a bit of non-free software, last time I looked) on top of what is basically CentOS.

        Bullshit where it is due, sunshine.

        1. ST Silver badge
          Mushroom

          Re: Clouded vision

          > The free edition of RHEL is called CentOS

          Ummm, no. CentOS used to be an independent distro. They cloned RedHat's srpm's and produced their own distro. RedHat acquired CentOS in 2014.

          What CentOS does to this day is not a free version of RHEL. It's something different. It may be free for individual developers, but for the likes of Google or Amazon it is definitely not free.

          Which is all completely orthogonal to your original bullshit. You claimed that RHEL was free, and that RedHat made money from services. RHEL is not free - as in beer, it never was. It actually costs USD $349 just to download the ISO, and that does not include any support. RedHat makes tons of money from selling RHEL support contracts.

          Wanna run CentOS for free? Be my guest. But that's not what the likes of JPMorgan or Caterpillar or FedEx are running. They all run RHEL. And they pay dearly for it.

          > Bullshit where it is due, sunshine.

          Glad to read you're in touch with your own bullshit.

          1. steelpillow Silver badge
            Meh

            Re: Clouded vision

            >Sigh<

            For the benefit of others, who are well aware that there is a difference between free as in freedom and free as in beer. I did not specify the particular nuances involved in my one-liner summary of the RH business model. It has changed subtly over the years. But you get the idea. All further nit-picking criticisms, whether bullshit or confused or possibly even half-right, should be sent to me at /dev/null.

            1. ST Silver badge
              Devil

              Re: Clouded vision

              > [ ... ] should be sent to me at /dev/null

              At least you identify yourself correctly. As in /dev/null.

          2. This post has been deleted by its author

          3. Alan_Peery

            Re: Clouded vision

            > What CentOS does to this day is not a free version of RHEL. It's something

            > different. It may be free for individual developers, but for the likes of

            > Google or Amazon it is definitely not free.

            Please point to the the portions of the CentOS website that support this statement, because you're not describing a situation I recognize.

          4. Teiwaz Silver badge

            Re: Clouded vision

            RHEL is not free - as in beer, it never was. It actually costs USD $349 just to download the ISO

            I seem to remember the occasional to regular version on magazine disks in the late 90's to early 00's.

            What cost was the support.

            I had a Red Hat version 6? (might have been 5, but I think it was 6) box version bought (in PC-World!!) in the early 2000's (for the manuals) - I think it was 50-60 (£) and came with a period of support after a sort - which I never used...

            Not a good desktop oriented distro at the time (and still not) - I went back to SUSE pretty quick.

      3. Charlie Clark Silver badge

        Re: Clouded vision

        They've been very profitable for many many years.

        Profitable certainly but, going by current revenues, not very profitable in comparison with other software companies. I'm sure IBM is aiming to change that by cross-selling things like DB2 with RHEL.

      4. macjules Silver badge

        Re: Clouded vision

        Look no further than what happened to Solaris at Oracle.

        Every day I dread hearing that Oracle have done to MySQL what they did to Solaris.

      5. Doctor Syntax Silver badge

        Re: Clouded vision

        "For starters, RHEL is not free. It's pay-to-play."

        Any payment is an advance payment for the services. If you don't want to download the free source and compile it yourself Centos, Scientific Linux & maybe others will do that FoC so it's not necessary to pay for it unless you want the services.

  2. disk iops

    IBM is dead-man walking. I've worked on several projects with them (GCS and not) and while there are good people here and there the corporate body-politic is a bunch of morons and looking for every opportunity to screw-over the client with ridiculous "solutions" and vastly overpriced "services".

    RedHat only had a value position by virtue of "commercial support" and for a while that support was pretty good. It's steadily gotten worse though and per-node value for dollar likewise. I've personally ripped and replaced hundreds of RHEL for CentOS and kept maybe a dozen or two "critical" systems on RHEL for the so-called support just to keep the auditors or 3rd parties happy. In the cloud-space Amazon-Linux or Debian-derivatives are the default and there is basically no reason to consider any of RedHat's offerings.

    RedHat's Gov't consulting division will fit right in with IBM GCS though - peas in a pod.

    1. panoptiq

      "RedHat's Gov't consulting division will fit right in with IBM GCS though - peas in a pod."

      100% agree.

  3. Mayday Silver badge
    Mushroom

    Well there goes Red Hat

    But if I were a Red Hat shareholder I'd be a pretty happy camper right now.

    1. panoptiq

      Re: Well there goes Red Hat

      Well IBM could actually make a success story out of this if... Scott McNealy were CEO. Under current leadership, I can't see Big-Blue doing well outside of massive government contracts.

  4. Nate Amsden Silver badge

    sad

    sad to see such big companies splash such massive amounts of cash while simultaneously practically strangling themselves for profits.

    I mean IBM could invest $1 billion more in their cloud stuff every quarter for the next 8 years with that kind of cash, and I'd hope they'd be able to get 10X out of it relative to what they may get from Red Hat in that time frame. Maybe they just aren't capable of doing that kind of thing(if not then that is sad too).

    If I was an IBM customer especially looking to use their cloud stuff I'd certainly be more impressed with an 8 year big investment push for their cloud stuff than a one off purchase of a services company whose software is all pretty much open source anyway. Everything I have seen claims IBM's cloud abilities are distant from the big guys. I can't imagine how Red hat can change that, with their software readily available to IBM this whole time.

    I haven't been a Red Hat customer in 13 years (though used CentOS more recently than that, last time I used it was about 2010). I could see Red hat being bought for $5B or something, but $30+ ? Just insane, such a wasted opportunity. I haven't been a customer of IBM stuff since about 16 years.

    Not that HP(who I have used a lot) is a whole lot different. If they had taken that $10B they dumped on fraud Autonomy and put it into mobile/WebOS that could of been something great.

    1. a_yank_lurker Silver badge

      Re: sad

      I am not sure of the long term value to either. Red Hat seems to be an odd duck and it looks Idiotic Brainless Morons badly over paid. So there were will fairly quick pressure to produce because of the size of the deal. I cannot see Ginni and crew keeping their mitts off RH after a few months to about a year.

    2. Charlie Clark Silver badge

      Re: sad

      I mean IBM could invest $1 billion more in their cloud stuff every quarter for the next 8 years with that kind of cash

      I'd rather they spent at least half of it on Watson. Let's do other things wit ML / AI than facial recognition.

      I could see Red hat being bought for $5B or something, but $30+ ?

      10 times revenues is about standard taking into consideration future growth prospects with one competitor less. But, yeah they're overpaying especially with current stockmarket developments.

    3. Anonymous Coward
      Anonymous Coward

      Re: sad

      "I mean IBM could invest $1 billion more in their cloud stuff every quarter for the next 8 years with that kind of cash"

      The problem is that investing an additonal $4B/year still puts them at less than 50% of the investment of Azure/AWS/Google who are at $10B+ year and have a 6+ year head start.

      IBM's "cloud" is a mix of legacy hosting and the SoftLayer acquisition - Softlayer is too small to compete with the big three and the legacy data centres don't provide modern hosting facilities or the scale required to compete with the big three.

      In my experience, IBM's enterprise cloud is more akin to a managed Rackspace/Sungard hosting offering and I can see the Red Hat acquisition worrying other cloud providers that depend on Red Hat tools for their business models as increasing licensing fees would make IBM's offering more competitive in addition to generating more revenue...

      But it still leaves IBM as an also ran in the cloud race and government business will continue to funnel away from IBM and into AWS/Azure/Google. IBM's attempts to use legal means to avoid losing government business in the US suggests that they are aware of what the future holds for them...

  5. sanmigueelbeer Silver badge

    The only thing that will "generate" money into IBM's balance sheet is RH's licenses.

    They can make more "savings" but gutting RH's existing workforce by declaring their positions as "redundant". After all, based on IBM's reasoning, there is a billion of "developers" in low-waged countries that IBM can hire.

    1. Anonymous Coward
      Anonymous Coward

      indeed, IBM should be able to reduce Red Hat's workforce by 2/3rd's within 2 years. All the good ones will be gone by then.

  6. Anonymous Coward
    Anonymous Coward

    IBM will integrate them, rename then "Blue Hat" and they will become totally worthless within 2 years, same as Softlayer, who was the number 1 cloud provider when IBM took them over.

    1. Anonymous Coward
      Anonymous Coward

      "same as Softlayer, who was the number 1 cloud provider when IBM took them over."

      Hahahahahahahahhahaha........

      Is there any basis for this comedy? You realise AWS/Azure/Google all exist right?

  7. panoptiq

    Three letters... D.O.D.

    Big Blue is in the midst of an evaluation for a massive cloud contract with the government. Google wants no part of it (for political reasons), Oracle is... Oracle & POTUS has no love for Amazon. This Leaves Microsoft, IBM and some minnows. Trump likes IBM for nostalgic reasons but the DOD knows that they are not ready for prime time. So to slice the baby so to speak, the DOD probably told IBM that they will get the contract but ONLY if they buy Red-Hat (a reputable player in the cloud). I would not be surprised in the least if most government + DOD contracts go straight to Big Blue from this point onwards. After all, that's 20 years of guaranteed profits/revenue.

    1. Anonymous Coward
      Anonymous Coward

      Re: Three letters... D.O.D.

      You missed AWS.

      AWS have already beaten IBM in a number of government contracts...

      The competitors in the DOD contracts are AWS/Azure and the "special purpose" data centres run by defence contractors that happen to be strategically valuable for their purpose.

      1. panoptiq

        Re: Three letters... D.O.D.

        I did not miss AWS - "POTUS has no love for Amazon"

        Your statements are accurate. Though I still see POTUS going a different direction just because he can. Also it's a good idea not to put all eggs in one basket. Cheers.

  8. panoptiq

    ???

    Is this news good for SUSE or bad for Suse?

    1. Lars Silver badge
      Joke

      Re: ???

      "Is this news good for SUSE or bad for Suse".

      Should make no difference, or are you playing with the name.

      "Their name at founding was "S.u.S.E" and it was chosen as a German acronym for "Software und System-Entwicklung", meaning "Software and systems development". The full name has never been used, however, and the company was known as "S.u.S.E", which was shortened to "SuSE" in October 1998 and more recently, to "SUSE".

    2. Anonymous Coward
      Anonymous Coward

      Re: ???

      My guess is it is likely good news.

      At present, some|a lot of|most enterprise applications supported on RedHat are also supported on Suse so if there is a move away from RedHat, Suse would likely benefit.

      The support for enterprise apps on other Linux platformsis less well defined - I suspect it is a case of the application support companies working with the OS support companies and at present, the choice is RedHat and Suse.

      YMMV

      1. panoptiq

        Re: ???

        Thanks.

    3. Jove Bronze badge

      Re: ???

      The current owners will only benefit significantly if there is a potential buyer, but otherwise it may have just turned into a dead-weight.

  9. GrapeBunch Bronze badge
    Coat

    Not Another Tupperware Opportunity

    Maybe the people who voted IDK are awaiting an integrated developer's kit in the second post.

    I don't know which one mine is.

  10. trashsilo
    Linux

    It's life Jim, but not as we know it.

    What a massive culture clash.

    Act in Open Source best interests v's Act in Commercial best interests.

    Jim Whitehurst (Redhat CEO) and Ginni Rometty(IBM CEO) interviewed together about the deal and neither were comfortable. Andrew Ross Sorkin (Squawk Box CNBC) poses question about culture differences from online analysis and Ginni responds :

    "Yeah look,,I,,theres two ways to think about this, first off Jim mentioned this. We are the largest contributor to open source. IBM is. And so when people say geez do we have embrace it, we have embraced it for 20 years..." <Jim Broadbent BIG GULPs>

    Interview link follows. Anyone distressed by content viewed, should consider contacting relevant support -> https://www.youtube.com/watch?v=TAWIxYa5hUI

    IMHO IBM maybe deluded or desperate. Good article thanks El Reg!

  11. trevorde

    Timeline

    I give it 18 months max before the Resource Actions start

  12. Anonymous Coward
    Anonymous Coward

    The value of RedHat is in its people

    The value of RedHat same as any pure open source company is 100% in its people. It is a combination of pay, work environment and ethos that keeps both young and seasoned developers in the house.

    Any ideas that this can somehow continue to exist under Jinnie are delusional. Pay will be cut, the predominantly remote and distributed work environment will be replaced by mandatory hive attendance and do not even get me started on the ethos.

    We are about to see the worst return on acquisition investment and the quickest run-down of an acquired asset since Brocade.

  13. dajames Silver badge

    That's all very well, but ...

    Will IBM scrap systemd?

    If so it'll all be worthwhile.

    1. Peter Gathercole Silver badge

      Re: That's all very well, but ...

      Hey, maybe they could RA Lennart!

      Or even better, put him in a quite corner where he can't wreck any more of the Linux/UNIX legacy in the name of making it like an offering of another large IT company.

  14. HmmmYes Silver badge

    Best coverage/speculdation other than this site (brown nose..) Cringely:

    https://www.cringely.com/2018/10/29/red-hat-takes-over-ibm/

    Interesting.

    Does IBM finally accept thats is no longer Bsiness Machiness but its now Business Software.

    If the new CEO is the RH one than thats going to be fun..

    1. stephanh Silver badge

      That seems a very optimistic take on things.

      IBM is by far the dominant partner here. Fat chance for RH corporate culture to make much inroad.

      IBM's track record on handling big mergers is not exactly stellar. Statistically speaking most such mergers fail (reduce value).

      So enterprises are going to buy RHEL because "nobody got fired for buying IBM"? Well perhaps. If so, be prepared to see Microsoft buy Canonical.

  15. Doctor Syntax Silver badge

    This decision "speaks to the overall rationale for this megadeal", said Indraneel Arampatta, analyst at Megabuyte.

    And what does the overall rationale have to say in reply?

  16. Jove Bronze badge

    Lost value

    RedHat's biggest value was perhaps the disruption it caused in the OS market and the damage it inflicted on the bottom-line of the OS vendors as existed in the 90s, with the wider world benefiting from lower costs on server provision than would have otherwise been possible.

    Now that most of the competitors have gone, and the general trend being a move to cloud that value was already fading - cloud vendors are full capably of building their own platforms, and on-premise is being undermined on price leading to a shrinking pool of potential customers. Yes there are other products in the line-up, but are they as mature revenue streams?

    RedHat shareholders have timed this right, and got out just after the business's value has peaked.

    Meanwhile IBM has repeated the mistakes we saw at HP and is in the process of blowing a fortune on an over-priced asset past its peak, while adding considerably to it's corporate debt bill. IBM shareholders have baulked at the move and may yet block the take-over. Even if it goes ahead, IBM is at high risk of a credit-ratings downgrade with consequent financial costs being another nail in the coffin.

    Not to worry, all the current execs with still get their pay-offs, and lots of new Execs and BAs will be pulled-in over future years to try and fix the integration of a business with an alien corporate culture.

  17. James Anderson

    Look what happened to wunderground

    Www.wunderground.com went from being the best weather channel to absolutely useless within months of IBM borking the weather company.

    In doing so it will gradually lose the 1000's of users who contribute thier personal weather station data, which, is also used by the rest of the weather channel sites.

    Short sited accounting always trumps long term economics at the new IBM.

  18. Anonymous Coward
    Anonymous Coward

    Well -- if RH and Openstack are so great ?

    Why is IBM ditching them to run Watson HC on VMware !

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