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Tech elephants start dancing to the sound of open source.The time of dreams
You've probably heard about the news: IBM buys Red Hat, a free software pioneer, for $ 34 billion, paying a premium of 63% of the company's stock in its free market. This is the largest software acquisition in history and, interestingly, it's a bet on a small company within Red Hat that, according to IBM, is to represent the future of the technology.
IBM, the former technology company that is trying to boost its growth, is currently trading 1.5 times its expected $ 80 billion in revenues this year, and just over 10 times its operating margin. Red Hat pays nine times more revenue and more than 30 times its operating margin. Indeed, while the $ 3 billion Red Hat turnover will add only 4% of IBM's total revenues, the newly acquired company will represent one quarter of the company's 107-year-old value. .
What makes this agreement even more interesting is that a significant portion of the $ 3 billion generated each year by Red Hat comes from its Enterprise Linux (RHEL) product, which has recently experienced a slowdown in growth. A much smaller share of the company's revenues comes from its cloud product, OpenShift, which includes open source tools for software developers, including the Kubernetes orchestration container product and the container-size Docker tool. only a few other goodies. All of these tools make software developers more productive and efficient, and more broadly, help transform the way software is created and implemented in most companies and organizations today. So, OpenShift is probably the focus of IBM for Red Hat.
Needless to say, this transaction raises huge expectations and we still do not know if IBM will be able to take advantage of OpenShift and extract shareholder value from the transaction. However, there are interesting implications for other players in the technology ecosystem, including large data center companies as well as smaller, emerging cloud-based businesses.
- The hybrid cloud is real, and not all workloads are transferred to public clouds. A few years ago, the pendulum seemed to be shifted from companies deploying a more traditional on-premise data center infrastructure to hot public cloud providers, most notably Amazon. In recent years, however, we have found that most business-critical applications still operate on a private cloud, though modernized by agile software and microservices to accelerate innovation. The private cloud accounts for 15 to 20 percent of data center spend, and the combination of private cloud and one or more public clouds, called "hybrid cloud," is here to stay, especially for businesses. Red Hat's OpenShift technology enables on-premise private cloud deployments, enabling IBM to play in the hybrid cloud.
Source: Global quarterly tracking of IT infrastructure in the cloudQ4 2016
- Amazon Web Services is still the king of the hill, but the battle of public clouds is far from over. AWS has perfectly planned its rise and deserves credit for exploiting the surplus IT infrastructure of the Amazon ecommerce company to make it a real business. With revenue of approximately $ 20 billion and operating margins of 30%, AWS must be the fastest growing technology company, or any other company, as we've known it for years. decades. Even in this case, the cloud game is only in its first or second run; There is still plenty of time for the $ 300 billion spent by industry datacenters to move to the cloud, and for competing cloud providers, Azure, Google Cloud, and others, to catch up. AWS. Existing on-premise vendors – IBM, Dell-EMC, Cisco, HPE and others – are also hoping to ride the wave, and IBM-Red Hat now has a better hybrid cloud history than other private centers of data. cloud story.
Source: JefferiesCompany reports
- The game has moved from IT infrastructure to developer productivity. Infrastructure innovators such as VMware, Red Hat, Pivotal, etc., whose products make the IT infrastructure resilient, agile and profitable, have benefited over the past two decades. The game has definitely evolved into the development layer: the 19 million software developers around the world control the keys to the realm of computing. Adoption by developers is now considered the main indicator of digital transformation and has a significant impact on IT purchasing decisions. Indeed, Microsoft's $ 7.5 billion acquisition of GitHub to accelerate the sharing of ideas within the developer community has, in many ways, been a great success. send to the party. The $ 34 billion paid by IBM to Red Hat also has a great influence on its future ability to gain traction with the eight million developers with whom Red Hat is committed, beyond the impact of acquisition on income or EBITDA.
- And last but not least – the future of the cloud is "open". We fundamentally believe that open source should not be perceived as a proxy for free or inexpensive software, but rather for modern and advanced software. Many of the world's most popular open source projects, whether they be Hadoop, Spark, MongoDB, Kafka or others, represent the innovation of some of the brightest minds in the industry working for changing companies like Google, Facebook and LinkedIn.
By democratizing access to cutting-edge innovation, open-source projects are paving the way for DevOps developers and engineers to collaborate and making innovation easily accessible to large companies on the threshold of digital transformation. Red Hat is one of the key members who pioneered the open source wave, and the company ranks first. BOSS Software (Battery Open Source Software Index) that we launched last year. In addition to promoting public opinion, Red Hat has also successfully commercialized the commercial model of open source software and derived commercial benefits, as well as other companies that have organized recent IPOs – Elastic, MongoDB, Cloudera and Talend, to name a few.
IBM sees open source innovation as the key to the hybrid cloud market, and its decision to acquire Red Hat demonstrates its commitment to producing cutting-edge software to help its hybrid cloud customers succeed.
The future of the cloud will be heavily influenced by open source, and this combination of IBM's sales machine and Red Hat's open source legacy will inspire other major data center players to continue their acquisitions and tie partnerships with new open source systems. source and DevOps upstarts. Now Dell-EMC, VMware, HPE, Cisco and others need to improve their game.
For my part, I am excited to see other elephants dancing on a hybrid cloud to survive and thrive.
Battery Ventures provides investment advisory services exclusively to funds offered by private funds. Battery Ventures does not solicit or make its services available to the public or other customers. For more information on the potential financing capabilities of Battery Ventures for potential holding companies, please visit our website. Although the information presented in this article is believed to be accurate, neither Battery Ventures nor any of its subsidiaries or representatives (i) give any express or implied warranty as to the completeness or accuracy of such information, (ii) ) can not be held responsible for errors in this article or (iii) has the duty to update this article or any of the information it contains.
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Tech elephants start dancing to the sound of open source.The time of dreams
You've probably heard about the news: IBM buys Red Hat, a free software pioneer, for $ 34 billion, paying a premium of 63% of the company's stock in its free market. This is the largest software acquisition in history and, interestingly, it's a bet on a small company within Red Hat that, according to IBM, is to represent the future of the technology.
IBM, the former technology company that is trying to boost its growth, is currently trading 1.5 times its expected $ 80 billion in revenues this year, and just over 10 times its operating margin. Red Hat pays nine times more revenue and more than 30 times its operating margin. Indeed, while the $ 3 billion Red Hat turnover will add only 4% of IBM's total revenues, the newly acquired company will represent one quarter of the company's 107-year-old value. .
What makes this agreement even more interesting is that a significant portion of the $ 3 billion generated each year by Red Hat comes from its Enterprise Linux (RHEL) product, which has recently experienced a slowdown in growth. A much smaller share of the company's revenues comes from its cloud product, OpenShift, which includes open source tools for software developers, including the Kubernetes orchestration container product and the container-size Docker tool. only a few other goodies. All of these tools make software developers more productive and efficient, and more broadly, help transform the way software is created and implemented in most companies and organizations today. So, OpenShift is probably the focus of IBM for Red Hat.
Needless to say, this transaction raises huge expectations and we still do not know if IBM will be able to take advantage of OpenShift and extract shareholder value from the transaction. However, there are interesting implications for other players in the technology ecosystem, including large data center companies as well as smaller, emerging cloud-based businesses.
- The hybrid cloud is real, and not all workloads are transferred to public clouds. A few years ago, the pendulum seemed to be shifted from companies deploying a more traditional on-premise data center infrastructure to hot public cloud providers, most notably Amazon. In recent years, however, we have found that most business-critical applications still operate on a private cloud, though modernized by agile software and microservices to accelerate innovation. The private cloud accounts for 15 to 20 percent of data center spend, and the combination of private cloud and one or more public clouds, called "hybrid cloud," is here to stay, especially for businesses. Red Hat's OpenShift technology enables on-premise private cloud deployments, enabling IBM to play in the hybrid cloud.
Source: Global quarterly tracking of IT infrastructure in the cloudQ4 2016
- Amazon Web Services is still the king of the hill, but the battle of public clouds is far from over. AWS has perfectly planned its rise and deserves credit for exploiting the surplus IT infrastructure of the Amazon ecommerce company to make it a real business. With revenue of approximately $ 20 billion and operating margins of 30%, AWS must be the fastest growing technology company, or any other company, as we've known it for years. decades. Even in this case, the cloud game is only in its first or second run; There is still plenty of time for the $ 300 billion spent by industry datacenters to move to the cloud, and for competing cloud providers, Azure, Google Cloud, and others, to catch up. AWS. Existing on-premise vendors – IBM, Dell-EMC, Cisco, HPE and others – are also hoping to ride the wave, and IBM-Red Hat now has a better hybrid cloud history than other private centers of data. cloud story.
Source: JefferiesCompany reports
- The game has moved from IT infrastructure to developer productivity. Infrastructure innovators such as VMware, Red Hat, Pivotal, etc., whose products make the IT infrastructure resilient, agile and profitable, have benefited over the past two decades. The game has definitely evolved into the development layer: the 19 million software developers around the world control the keys to the realm of computing. Adoption by developers is now considered the main indicator of digital transformation and has a significant impact on IT purchasing decisions. Indeed, Microsoft's $ 7.5 billion acquisition of GitHub to accelerate the sharing of ideas within the developer community has, in many ways, been a great success. send to the party. The $ 34 billion paid by IBM to Red Hat also has a great influence on its future ability to gain traction with the eight million developers with whom Red Hat is committed, beyond the impact of acquisition on income or EBITDA.
- And last but not least – the future of the cloud is "open". We fundamentally believe that open source should not be perceived as a proxy for free or inexpensive software, but rather for modern and advanced software. Many of the world's most popular open source projects, whether they be Hadoop, Spark, MongoDB, Kafka or others, represent the innovation of some of the brightest minds in the industry working for changing companies like Google, Facebook and LinkedIn.
By democratizing access to cutting-edge innovation, open-source projects foster collaboration between DevOps developers and engineers and make innovation easily accessible to large corporations at the threshold of digital transformation. Red Hat is one of the key members who pioneered the open source wave, and the company ranks first. BOSS Software (Battery Open Source Software Index) that we launched last year. In addition to promoting public opinion, Red Hat has also successfully commercialized the commercial model of open source software and gained commercial benefits, as other companies have done with recent IPOs – Elastic, MongoDB, Cloudera and Talend, to name a few.
IBM sees open source innovation as the key to the hybrid cloud market, and its decision to acquire Red Hat demonstrates its commitment to producing cutting-edge software to help its hybrid cloud customers succeed.
The future of the cloud will be heavily influenced by open source, and this combination of IBM's sales machine and Red Hat's open source legacy will inspire other major data center players to continue their acquisitions and tie partnerships with source and DevOps upstarts. Now Dell-EMC, VMware, HPE, Cisco and others need to improve their game.
For my part, I am excited to see other elephants dancing on a hybrid cloud to survive and thrive.
