IBM spends $34 billion on cloud computing with Red Hat purchase

IBM spends $34 billion on cloud computing with Red Hat purchase

IBM spending $34 billion to acquire the open-source software and cloud computing firm Red Hat. It’s the biggest acquisition ever for IBM, which is betting that the move will make it a bigger player in the big market for a specific kind of cloud computing.

“Who knows where this [data] is?” expressed Kim Forrest of Fort Pitt Capital. “Over in China? Over in Europe? You don’t know where the cloud really is, all of that back and forth takes too long. So you have to have stuff close to you, like the guts of your business.”

Having some cloud close by and some at a distance is called “hybrid cloud.” It needs the various clouds to talk to one another, and Red Hat makes software to do that.

That is a major reason IBM bought the company. IBM hopes that acquiring Red Hat will help it take on the biggest players in cloud computing, Amazon and Microsoft, says Chris Gardner at Forrester Research.

“This is a proactive approach to say look, we don’t want to be in their shadow when it comes to hybrid cloud,” he stated. “We want to be a first-run player.”

IBM hasn’t been first at much lately. Michael Cusumano at the Sloan School of Management at MIT says Big Blue came late to mobile computing and the cloud. Now, it’s playing catchup.

“It’s still an important company,” Cusumano told. “But it’s not a growth company anymore. It’s a shrinking company. The big challenge for the CEO Ginni Rometty is to figure out how to grow again.”

The purchase is a pricey bet for IBM: $34 billion is 63 percent more than what the market thought the Red Hat.