After acquisition by IBM, can Red Hat retain its distinct identity?

After acquisition by IBM, Red Hat is working to retain its innovative streak and identity while leveraging the former's size and footprint

For decades, IBM and Red Hat collaborated on open source. But when Red Hat was acquired by IBM — the deal was inked last year and closed three months ago — a fundamental question arose: While Red Hat is hoping to ride on IBM’s market capabilities and size to achieve faster growth, won’t there be channel conflict? Can Red Hat retain its innovativeness or for that matter its distinct identity as part of a larger enterprise? Will it be able to negotiate the complexities of a broader ecosystem and leverage it to its advantage? 

The Raleigh, North Carolina-headquartered Red Hat, which reported $3.4 billion in revenue in the 2019 financial year, says the deal is a win-win for all. IBM has a large footprint in the marketplace, and its partners see that as an opportunity. Indeed, it says, there is no channel conflict — everything boils down to how you really manage the channel from IBM and from Red Hat, and work to understand where each adds value.

Now look at the larger open source opportunity. Five years ago, when the Indian government mandated adoption of open source software for all software applications and services of the government to ensure projects under Digital India were implemented efficiently, transparently and at affordable costs, large technology firms such as Microsoft, IBM and Oracle didn't take to the move too kindly. Today, most of them have embraced open source: Microsoft bought the world’s largest collaborative repository of open source software, GitHub, for $7.5 billion last year, while IBM bought Red Hat for a whopping $34 billion last year. 

Founded in 1993, Red Hat was already big in the enterprise space managing projects encompassing technologies like Linux, Kubernetes, Ansible, Java and Ceph. India has been a big part of Red Hat’s strategy, and the company hopes building on its core strengths here, even post-acquisition. “We have developed a good strategy a couple of years ago around hybrid cloud. The fact that IBM acquired us does not change that at all. Red Hat continues to remain Red Hat,” said Frank Feldmann, chief technology officer, Red Hat Asia Pacific. 

He added that the company is going to expand and double down on the things it was doing — building a better operational experience for hybrid cloud. "And we're going to continue to invest in reaching out to developers in a big way to make sure they will find the best place to build their applications is within the Red Hat, open source ecosystem," he added.

According to Statista, the total global revenue in the open source services market will reach over $17 billion this year, and is expected to grow into a $30-billion industry by 2022, growing three times in five years.

Technology majors like Google, Dropbox, Mozilla, Quora, Intel, Cisco, Hewlett-Packard, Seagate, Qualcomm and IBM have extensively used open source technology to build their products. Feldmann explained that right from the telecom networks of Airtel and Vodafone-Idea, to air travel (Red Hat powers Indigo Airlines’ reservation system), open source is everywhere. “If I go back, five or ten years ago, there was a lot less of that, compared to now. The taxation system, the goods and services tax network is also built on Red Hat technology,” he added.

Red Hat is closely watching the ongoing turbulence in the telecom space, including the challenge to incumbents from Reliance Jio, and is working towards helping its clients scale better and faster, he said. 

There have not been many studies on the economic impact of open source software in India, but a 2015 study by the Indian Institute of Management Bangalore estimated that the use of free and open source software could lead to estimated savings of about Rs 8,254 crore in Indian schools, and about Rs 51.20 crore in police departments. “We’ve made huge strides in the use and acceptance of open source technologies in India, thanks to government initiatives. I still believe there is a lot more that can be done when it comes to the sharing part of open source... establishing open source projects that originate from India and is shared with the world,” Feldmann said.

It won’t be a cakewalk for Red Hat though. Issues around security, and how to keep costs low, which is an advantage that open source systems inherently have, would be areas to focus on going forward.