Having worked at IBM for 10 years, this is what I have come to know how IBM operates top-down:
1. To make significant profits, we need to sell services on top of our software products (this is essentially GBS and their "strong" sales people)
2. To make very good profits, we need to make highly customizable software (for example AI and BI offerings).
3. To make even more profit we need to make sure the software is tuned to the hardware we make.
If one of those weakens the entire IBM portfolio and profits weaken dramatically.
Here's problems in last 7 years tho:
1. People moving to the cloud so the hardware business flatlines.
2. Because people moved to the cloud they found replacements to IBM software.
3. At the end of the day IBM is forced to deliver professional services on top of other companies' software and hardware (and services employees are not cheap).
At some point the IBM execs must have had an epiphany that their AI offerings don't sell because they don't have a platform that sells other commodity cloud services on top of which AI components can be sold as high-priced addons.
So thus IBM decided to do what it does best --- take control of the entire stack.
With this acquisition IBM has the potential to become a next gen. cloud vendor. For example IBM has been trying to sell Bluemix as a hybrid PaaS/IaaS but haven't been very successful. The engineering team in Bluemix is weak and one way to really up the ante is getting access to top talent in the industry to do this (CoreOS team, Openshift.io team, linux kernel devs, distributed storage devs).
What's not clear here is that why would one company, which is dong pretty well, better every year, would want to be sold to another company, which doesn't look well (from your own description), instead of just continuing growing and eventually "winning" the cloud market by themselves? Is that just because top Red Hat people wanted to cash out more quickly?
Maybe because IBM would have provided a superior price, and RedHat is a public company answerable to shareholders.
Let's take reality, RedHat is still a small player compared to Amazon, Microsoft or Google. They don't have the bandwidth to compete on all the additional hosted services offerings. By partnering with IBM, they get access to IBMs entire suite of enterprise customers and hosted products, making them a serious competitor to the 3 big players instead of being a "me too, cloud". They could make it big together, looking optimistically. But it's on IBM to not screw this up.
>> Maybe because IBM would have provided a superior price, and RedHat is a public company answerable to shareholders.
I think a lot of readers probably don't understand what that line means. Even if the C-suite at RedHat did not want to do this, they have no choice. Shareholders can riot and oust you(executives) for not taking what they consider to be the "best deal"(and this is one heck of a deal). Long story short, even if you don't want to sell - once the price is high enough, the shareholders will force you.
redhat was trading at around $120 last week and IBM announced "Red Hat for $190.00 per share in cash, representing a total enterprise value of approximately $34 billion."
That $120 was really high for redhat, who just crossed the $100/share price last year. (unless you count year 2000/dotcom-IPO-madness) RHT's market cap was previously $20B.
yeah it's not raising my eyebrows but I was trying to give the data to explain why an established and somewhat profitable company (like redhat) would sell to a player like IBM. It's just a lot of money to turn down!
1. To make significant profits, we need to sell services on top of our software products (this is essentially GBS and their "strong" sales people)
2. To make very good profits, we need to make highly customizable software (for example AI and BI offerings).
3. To make even more profit we need to make sure the software is tuned to the hardware we make.
If one of those weakens the entire IBM portfolio and profits weaken dramatically.
Here's problems in last 7 years tho: 1. People moving to the cloud so the hardware business flatlines. 2. Because people moved to the cloud they found replacements to IBM software. 3. At the end of the day IBM is forced to deliver professional services on top of other companies' software and hardware (and services employees are not cheap).
At some point the IBM execs must have had an epiphany that their AI offerings don't sell because they don't have a platform that sells other commodity cloud services on top of which AI components can be sold as high-priced addons.
So thus IBM decided to do what it does best --- take control of the entire stack.
With this acquisition IBM has the potential to become a next gen. cloud vendor. For example IBM has been trying to sell Bluemix as a hybrid PaaS/IaaS but haven't been very successful. The engineering team in Bluemix is weak and one way to really up the ante is getting access to top talent in the industry to do this (CoreOS team, Openshift.io team, linux kernel devs, distributed storage devs).