What IBM’s Purchase of Red Hat Will Mean for Open Source

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Female voice: Hello. Welcome to the New Stack Context, a podcast where we review the week’s hottest news in cloud-native technologies and look ahead to topics we expect will gain more attention in coming weeks.

Alex: Hello. Welcome to the New Stack Context, where today we will be discussing the news about IBM acquiring Red Hat for $34 billion. I’m Alex Williams, founder and editor in chief for the New Stack, filling in for host Libby Clark, our editorial director who is out again this week. We wish Libby well. She’s got that terrible stuff that’s been going around – all those bad colds. TNS Managing Editor Joab Jackson is in New York, and Ben Ball, our director of marketing is in Raleigh, Red Hat’s hometown and a major hub for IBM. I guess I just learned today on one story that people actually do drive between Armonk and Raleigh on the IBM kind of thing. So, that was interesting, but I will get to that in a little bit.

Our guest this week, Ritesh Patel – cofounder at Nirmata – who is going to weigh into the discussion. He had a blog post on the topic this week about the IBM acquisition. So, thank you for joining us. Why don’t we just get right into it? For me, this conversation really is thinking of the past, the present, and the future. We’re thinking about an acquisition today, but it also reflects quite a bit on IBM’s history, Red Hat’s history, and then the future of these open-source technologies that we’re seeing emerge increasingly. Now with an acquisition such as this, it raises lots of questions about open source. It raises lots of questions about the future of these companies. It raises lots of questions about cloud services. So much to discuss.

With that, I would really just love to get started with a conversation, Joab, starting with you about the perspective on the news. Ben, if you could talk to us about what you’re hearing on the street. Then I think we can get into the perspective that Ritesh can provide from his perspective, especially as a startup, thinking through this major acquisition that we’re seeing. So Joab, what are some of the things that you’ve been researching, writing about, and that other people on the team have been discussing and writing about, as well?

Joab: Well, basically the news came on Sunday as a bit of a surprise for a couple of reasons – that indeed IBM is in the process of buying Red Hat. It’ll take another year to finalize. It’s buying into kind of a premium, at least as far as Red Hat shareholders go. They’re getting a little bit more for their stock than what is commonly being transacted on the market, and it’s kind of interesting for a number of reasons.

A lot of people have been – in analysis, a lot of people have been pointing out  that IBM over the past few years – they work on long-term enterprise contracts, and they still have a big base on Unix systems and mainframes. And that revenue stream, while still it is shrinking a little bit… It’s certainly not growing, and that might pose difficulty for the company – and a few years back the company put a big push into Watson, which is basically a brand name for a large number of AI-type services that you can rope into your own systems, as well as ramping up on the IBM cloud.

Neither one of those – well, neither one has really scaled out perhaps as much as IBM has expected it would. And so the purchase of Red Hat, which – you know, Red Hat – whose revenues I think this year will probably surpass $3 billion… Basically they made their mark going into the enterprise offering Linux as a lower cost alternative to Unix. They’ve been true to their open-source roots. They’ve been investing a lot of projects coming about. OpenStack was one of them, and more recently Kubernetes, Ace, and even Istio, the service niche that goes with Kubernetes – and earlier this year they bought a company that we’ve been covering really closely called CoreOS, which was basically what we like to call a new stack company – a post-container company.

So you know, there’s been a lot of questions. Is this a good acquisition? It certainly helps IBM. I think I read somewhere that the average Red Hat employee brings in more revenue – maybe $100,000 more revenue per year – than the average IBM employee, even though IBM has ten times as many employees as Red Hat. So purely from a perspective of generating revenue and to boost the bottom line, this seems like a good deal.

Then there is the infusion of open source. Now, I’ve read a lot of reports that this is bringing open source to IBM, which really isn’t the case. IBM has been pretty aggressive in supporting their own open-source projects, though perhaps not anywhere near with as much enthusiasm as Red Hat. But there should be some interesting synergies there, as well.

Alex: I just have one question about that. So the approach that IBM takes to open source – how is that different than the approach that Red Hat takes to open source? And I’d like to open this up to anyone – Ritesh or Benjamin. Ben, do you have any thoughts?

Ben: Definitely. I actually was just reading Tyler Jewell’s article that he wrote on this, offering the perspective of a company that’s been acquired by Red Hat. Codenvy was his former company, and he cites that at the core of what he thinks is the open-source culture shift change between them – that Red Hat has essentially a line in their own employee manual that says we are going to contribute upstream to open source because that’s what we want to do. Whereas Red Hat does it in a me-first stance – or at least that is the stance that he presents it as.

You know, I kind of think that’s arguable. I think there are people who are going to say that maybe IBM is less bloodthirsty than that, but I really think it’s interesting that he points out that this has sort of been a year of open-source acquisitions and that these major corporations have to take a me-first stance in some of these areas. So I kind of think that he’s got a point there.

Ritesh: Yeah, and I agree. I actually read the same blog, and I’ve actually had experience working with folks at Red Hat in my previous company when I was leading the OpenStack initiatives. You can see from a culture standpoint that Red Hat culture is an open-source first culture. They kind of partner really well with the ecosystem to make sure their open-source-based products work well with other vendors and so on.

With IBM, it’s kind of depending on which team or which group, it varies. It seems like it’s not necessarily always open source first; it’s more about getting IBM proprietary technology in there somehow. So it’s a little bit of a culture difference between IBM and Red Hat, and that eventually will make or break this acquisition.

Alex: So both of those philosophies are in the DNA of those respective companies. Red Hat’s DNA is built around open source first, right? IBM’s open source philosophy is more about getting a lock through open source? Or getting a real kind of market share through the proprietary software and leveraging open source with it? What is the open-source proprietary software intersection that you see with a company like IBM?

Ben: I’ll add that Tyler described the mindset at IBM. The direct quote is he called it a “patent-first mindset” – essentially the idea that contributing to open source has its own corporate benefits that go beyond those projects and into their closed-source and proprietary offerings. It’s sort of interesting, because it’s not that there’s no charitable component there, but it is ultimately going to provide a sort of secondary benefit to them. Whether or not that’s a bad thing, I think that could be argued.

Alex: Ritesh, in terms of this effect on a company like yours, tell us a little bit about your company. Then perhaps then you can tell us what you might have been thinking when this news first broke.

Ritesh: Absolutely. So, Nirmata is a Kubernetes service management platform. We provide Kubernetes-based application platforms for enterprise IT teams so that they can internally deliver Kubernetes as a service. We started out late 2013, right around when containers took off, and we have built our product since then.

With Red Hat, we’ve kind of had integrations where we partner with Red Hat on the operating system on the container side, but on the product side there is somewhat of an overlap with an open chair, which will be an alternative solution. But from our perspective – and I’ve also spoken to some of the other vendors in the Kubernetes ecosystem – we think this is a huge validation when it comes to containers and Kubernetes, right?

Earlier this year Red Hat bought CoreOS for a couple hundred million. That itself was a big validation, right? Red Hat has all the open-source jobs, but they acquired CoreOS because CoreOS was active and engaged in the Kubernetes community. They had a lot of projects in there. So now this, with IBM’s acquisition of Red Hat – it’s about IBM validating that Kubernetes is going to become – or IBM expects that Kubernetes will become the common layer for hybrid cloud or multicloud, as they mentioned in their press release. And we see the same – our solution we built around Kubernetes as a multicloud solution.

Our approach we have taken that is different from Red Hat is we don’t roll out our own Kubernetes distribution, and that has given us… With some customers, that has been an advantage, where they want a Kubernetes distribution from a different vendor, from a cloud provider like with a managed Kubernetes service, or just upstream Kubernetes – versus an OpenShift, where you get the distribution as part of OpenShift, and there is no way to kind of manage or operate it separately.

Even though Red Hat, being open or on the forefront of open source – not all products are necessarily open when it comes to customers, and that’s the kind of challenge companies like Red Hat and even IBM will have. Where how do you still avoid lock-in even though you’re using an open-source Kubernetes-based platform?

Alex: When you’re thinking containers all the way down and the approach to open source that is followed by each of these companies, what intersections do you see?

Ritesh: So, the main intersection there is around how they’re looking to monetize open source and these technologies, right? I think IBM, with its services business and the majority of its revenues – or significant revenues coming from there – it’s all about having a portfolio of products that it can sell to its existing customers and sell services on top, whereas for other companies it’s more about selling the product on top of these open-source projects that customers want to avoid lock-in, right? So I think those are the kind of different approaches that we see. Again, depending on the companies, either approach works fine.

Joab: IBM is primarily a – has been for a while – primarily a services company . It’s been divesting from hardware and from software for quite a bit, but that said, I’ve heard this described as a reverse acquisition in the fact that over the long run we might see more of Red Hat’s DNA in IBM than vice versa. As anyone who’s ever been visited by a team of IBM sales people can attest, this might be a good thing.

Ben: That kind of makes a lot of sense, right? Red Hat, really at the DNA of their money making components, is that same kind of services team. I think the best case scenario a lot of people have presented is maybe Red Hat will make a bigger impression on IBM than IBM will make on Red Hat. Now, you know, that’s a little bit of a David and Goliath story, but it’s certainly possible. Red Hat does have a very infectious culture and mindset. Arguably this could make a big change for quite a huge company and quite a number of people in that company.

Alex: Now when you look at it, Joab – I’d like to bring this back to you a little bit – we did do some reporting this week, and we talked about this discussion about multicloud versus hybrid cloud, which we made a point to discuss in the context of this article titled “IBM’s Red Hat Buy Aims to Bring the Hybrid Cloud to the Enterprise.”

Joab: They’re calling it hybrid cloud because they still… They’ve discussed this in a number of interviews. The base that they’re looking to press is really the enterprise that is primarily still in-house. Or if they’re using cloud at all, it’s for one-off and greenfield projects, but they’re still looking at the user base that is running a lot of data centers. The difference seems to be one of semantics – multicloud versus hybrid cloud.

As Lawrence Hecht has pointed out – our research analyst – hybrid cloud as an operating buzzword has kind of peaked, and now everybody’s talking about multicloud, but the hybrid cloud more explicitly addresses I guess you would say the legacy market – that is, the market that IBM is interested in servicing. That’s why Kubernetes and containers is such a valuable thing for them, because not only does that give their customers a multicloud kind of approach to moving to the cloud – one that doesn’t lock them in – but since it’s based on Kubernetes and containers, it’s also an open approach as well. From the perspective of IBM’s customers, as well as Red Hat’s continuing work in bringing more people over from the legacy Unix platforms, in this case the hybrid cloud designation seems to make sense.

Alex: In a multicloud perspective, we hear it often discussed more from a container-native kind of consideration but I think one of the things I think about, Ritesh, is in your post and how you kind of did discuss this paradox here of sorts with companies like IBM and Red Hat, where they do face this very traditional business that they’ve had in this container kind of native approach that we’re seeing evolve.

Ritesh: Yes, I think that’s where the challenge is, right? So, more and more enterprises they want cloud-like agility, cloud-like – you know, being able to move fast. They want to adopt microservices, but they have existing investment and existing infrastructure that they want to continue to leverage as much as possible, because they’re not going to completely get… In some cases they do, but in a lot of cases they want to leverage the investment instead of just go out and make new investment because there’s a whole lot of other aspects to it, right? Training the people, getting comfortable with different technologies and so on.

We see, again, Kubernetes and containers as a vehicle which allows them to make that transition, and that approach is for sure validated by IBM’s acquisition of Red Hat. Just like Joab pointed out, that’s what we see for these large enterprises. That’s going to be the strategy going forward, not as much for startups and not as much for cloud-native companies or more tech-savvy companies – but for mainstream enterprises, for sure.

Joab: That’s something I’m kind of curious about. I know when the New Stack started out three or four years ago –

Alex: Four.

Ritesh: – I mean, we were focused quite a bit on hungry and innovative startups – you know, Docker and Rancher – and there was a lot of innovation going on there. Now this is the normal course of things, but now a lot of the IP is being held largely by large companies: Google, IBM, and Microsoft now. This is the way the web services played out ten years ago. It’s a natural course of events, but does this mean that the platforms for distributed applications – does this mean the technology is maturing, and so the innovation is slowing? Or will innovation continue to keep moving forward out? I don’t know.

Ritesh: I think in this journey, at least, when it comes to containers, we are still at very early stages. So the innovation is going to continue, like you pointed out. I mean, as we work with customers on Kubernetes, we are amazed to find out all of the different ways they intend to leverage Kubernetes and containers and all the different requirements they have. It’ll ultimately come down to companies that can best understand these customers and respond to their needs.

In some cases, customers will go with larger organizations because of existing relationships. In other cases, especially when it comes to this hybrid type of approach, where even though… At least in one case, one of our customers had an existing relationship with Microsoft. They’re not using necessarily Microsoft for Kubernetes or any of the other container-related projects. So I think that’s the opportunity for younger companies in this space.

Ben: Part of the thought that Tyler Jewell had in his piece was also about, you know, will this slow the rate of innovation? Is this something where two opposite models or cultures are going to slow down what could be called two extremely active Kubernetes and container shops? I think the way he described it was kind of a clash to overlap, reduce the competitiveness between offerings, and kind of integrate with this new conglomeration of things.

I don’t know if it’s necessarily any different than what Joab mentions of the consolidation into these bigger corporations we’ve seen this year. I don’t know if we have enough evidence really to say how that’s going to impact innovation. Personally, I think Microsoft has actually done a lot of good stuff in the last two years. So you know, are they slowing things down? Or is it sort of the opposite? It’s kind of an interesting case there.

Alex: Well, I would love just in conclusion to get Ben’s perspective from actually being in Raleigh, the hometown of Red Hat and also a city where IBM has a large presence… The discussions there must be palpable.

Ben: Yeah, it’s actually really interesting, because Red Hat really is sort of a hometown hero in Raleigh. If you’ve ever been to downtown Raleigh, which I know Alex and Joab were just here, they sort of dominate the skyline of our otherwise humble city. And IBM has been here since 1965, I think, and they have had a very long history of being a huge employer in North Carolina. So we’re talking about two sort of household names, almost, in not only the tech world but sort of everything around it here.

You know, Red Hat is even intertwined in the largest university in the city, North Carolina State University, and the history and legacy here is interesting. So in talking to people, especially after their all-hands meeting on Monday, there are kind of three I would say main threads of concern. I think they’re all practical. It’s sort of a different conversation than the one we’ve been having at our level of analysis, because we’re talking a lot about the impact on hybrid cloud market or landscape, or the financial outcome, whereas a lot of the people that I’m talking to are not on the innovation team necessarily. They’re services engineers, or they’re more in the IT space, or they’re even part of the HR marketing accessory kind of organizations that exist here.

A lot of those people are kind of referencing whatever cultural milestone they can. I think in this case, a lot of people are referencing IBM’s SoftLayer acquisition and incorporation into Bluemix in the past. I talked to a couple different people, two of which are former IBMers at Red Hat, who basically are just worried about how smoothly this will go. Is there going to be a reduction in services that are considered redundant?

If you don’t know a lot about the Red Hat HQ in Raleigh, they have a lot of accessory services located there that may or may not overlap with some of the services that are at IBM’s campus in the Research Triangle Park, which is not very far away. It’s like eight miles away and is where a large amount of IBM services are.

When we see these kind of mergers… Actually Red Hat has a really good one to point to. The tower that they now occupy in Raleigh was only cleared out because Progress Energy and Duke Energy merged and had to reduce their real estate impact. So they had to move out of those offices. So a number of people are worried, does this mean that there’ll also be a reduction in the scale of services for IBM and Red Hat combined?

So I think that first one is, will I be employed? Which I think is a reasonable concern to have. I think the second kind of area focuses on culture. It’s not necessarily the same open-source culture conversation we’ve been having. I think just in terms of the way companies structure their workplaces, structure employee time, and kind of the philosophy towards employment is part of the culture that they’re talking about… Maybe workplace ethic is another way to kind of say that.

If you go to Red Hat Tower, it’s an interesting kind of ecosystem there. IBM Campus – you know, they’re larger, they have to accommodate a lot more people, and they’re a lot older. So the question is, will I get that same almost millennial software leadership feel versus one of the oldest and largest companies in the world? I think that is what people will highlight.

I kind of heard a really interesting counter to the narrative that we’ve been hearing, which is if you’re someone who’s on those services teams or if you’re someone who is not necessarily an innovations engineer and this goes smoothly, there’s not really a negative for them as much. There are some people who are more optimistic than I initially thought they would be, who have said my life won’t necessarily be too much different as long as they are treating this seriously and we actually are in a position where Red Hat can be a stable, secure component of the IBM model.

I think a lot of people were assured by two things. One, existing as a separate business unit. I think that has probably reassured a lot of people that there won’t be that same kind of weird acquisition that SoftLayer went through. And I think really think the second part is they had an all-hands on Monday morning that let them know this is what you need to know. We’re not holding this back from you. It seemed like that reassured people, and it really did pull in everyone at Red Hat. So I thought that was an interesting tactic they took.

Alex: Interesting times, interesting times. Ritesh, any last thoughts that you’d like to share based on Ben’s perspectives and just thinking through this as we kind of move forward into the last bit of the year?

Ritesh: You know, I agree with what Ben just said. Having been through some of those types of acquisitions on either side – and these are normal and natural – one thing I’ve seen in my past life in this is even though Red Hat is going to be operated as a standalone company, ultimately IBM holds the pull strings. If IBM does not grow after the acquisition – does not grow as the Wall Street analysts expect it to – then everything is up for grabs. Everything is going to be scrutinized and checked. So if the going’s good, everything’s good. If not, then you know, these things kind of take a different turn. So we’ll see how that goes.

Alex: Such a dynamic time anyway. So there’ll be all kinds of discussions to be had that we’ll be sure to pick up I’m sure rapidly once again. Joab, why don’t we use this as a transition point to get into any of the other news on the site. Then maybe I’ll talk a little bit about one of the podcasts I liked. Then we’ll wrap it up.

Joab: All right, that sounds good. Yeah, there are a couple other stories this week. One is we finally got around to doing a story about Gravity, the company Gravity. They have a new offering that allows users to set up thousands of identical clusters. This is intended to ease the pain of setting up and managing Kubernetes, if you’re still running Kubernetes in-house or are still keeping control of it on the cloud. So check that out. I know the issue of how you actually deploy Kubernetes, as the folks over at Nirmata know very well, is it’s still a big challenge for organizations. So here’s another possible solution to that. So check that out.

Over at the Cloud Native Conference in London a bit back, TNS friend Daniel Bryant had a nice presentation that was covered by our London correspondent, Jennifer Riggins, on developing workflows for the new developer experience. Basically because containerization is changing things, how does this change the developer experience? And he has a lot of points. They’re all leading to the idea – and we’ve heard this elsewhere – is the developer should basically be working on business logic and looking for new ways of providing value to the end users, rather than actually doing backend programming. So he has some tips there, so check that out as well.

We also got a contributive piece from a company called Rubric on the declarative power of APIs. We’re starting to see, especially with [Rev-QL] come out – you know, a renewed interest in the true power of APIs. He makes a good point. I never quite realized this before, but APIs are powerful because they provide a declarative programming model and not an imperative one, where you have to write out all the steps. The declarative one is you tell the API input what you need, and it provides it back to you. And this is a force multiplier. So that’s an interesting argument that might be worth checking out.

Yeah, in the podcast I was very excited that we got a chance to talk with Mark Russinovich. He’s the CTO of Azure, and there’s another interesting case of reverse acquisition – that Microsoft actually hired Russinovich a few years back when he came up with tools that were better at debugging Microsoft Windows than Microsoft’s own tools were. So now he is basically the guy keeping an eye behind Azure. So, we have a great podcast interview with him. Yeah, you want to talk a bit more about that?

Alex: I was going to say I really find Mark Russinovich’s explanations about microservices as very clearly thought through, and he talks about it in the blog posts that Swapnil wrote. Swapnil did the interview – Swapnil Bhartiya. Swapnil is one of our correspondents. He’s actually an excellent videographer, and he really did a nice job in this interview in talking and helping us I think understand a little bit better very basic concepts that might seem ordinary after time, but actually still require a degree of thinking that helps you really be more succinct about what these services mean.

Russinovich really directed the conversation back to the client/server era, that era of monoliths. Speaking of IBM/Red Hat news, it really speaks to, as well, how a lot of these companies – Microsoft, Oracle, Apple – you know, they do come from another era themselves and we are rapidly moving into a much newer dynamic, which kind of helps to solidify it. When you hear someone like Russinovich talking about it, it provides a perspective, you know, both that’s very respectful of the past, but also looking very much towards these much different types of models that break the existing monolithic structure. So that actually was my choice for a podcast, as well.

Joab: We’re very excited to run it, yes.

Alex: Great. Well, I think that is a great place for us to end this show. Ritesh, thank you so much for joining us on this episode of the New Stack Context. I’m sorry that Libby wasn’t here. We’ll have to have you back on another time.

Ritesh: Thank you. Thank you for having me.

Alex: You’re welcome. Ben Ball in Raleigh, thank you for that very complete perspective. It does provide a lot of different context about the community and the people who really are directly affected by these types of acquisitions. And Joab Jackson in New York, our managing editor, thank you so much for the continued research and reporting. We’ll be back again soon for the New Stack Context. Bye bye.

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