IBM's Red Hat Acquisition & The Future Of Cloud Computing

Audio Length: 00:15:47

On today’s episode I explore the details of IBM’s historic bid to buy open source software giant Red Hat and speculates about what it could mean for the future of the cloud computing industry.

IBM (IBM - Free Report) plans to pay $190 per share for Red Hat (RHT - Free Report) , a roughly 63% premium to its Friday close. The deal values the open source tech firm at $34 billion, which also represents both IBM’s largest acquisition ever and one of the four largest U.S. tech mergers of all time.

Big Blue believes that Red Hat is worth such a steep price tag because a combined company will change “everything about the cloud market.” Specifically, IBM hopes to leverage Red Hat to help it become the world’s largest hybrid cloud platform provider.

This move not only marks the start of IBM’s plan to do just that; it also sends a direct message to Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) , and Google (GOOGL - Free Report) —IBM’s three larger cloud platform competitors.

Those tech behemoths all operate major public cloud products, meaning that other businesses pay them for access to their infrastructure via the internet. This has become extremely popular among enterprises in recent years, although some companies do opt for the private cloud—infrastructure designed or built specifically for individual use—in order to satisfy capacity or privacy needs.

The term “hybrid cloud” refers to any instance when public cloud and private cloud infrastructures are used simultaneously. Red Hat makes products that are designed to help customers manage multiple cloud platforms at once, so it seems an ideal match for IBM’s hybrid cloud ambitions.

Analysts have already called the deal “as transformative as it gets” and “game changing.” But did IBM pay too much for Red Hat? Are its plans to become the hybrid cloud king realistic? Will its cloud competition swoop in to start a bidding war?

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