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The general strategy seems to be: IBM's customers have been slowly transitioning from proprietary IBM OSs (AIX, z/OS) to Linux for a lot of their workloads, and

The general strategy seems to be: IBM's customers have been slowly transitioning from proprietary IBM OSs (AIX, z/OS) to Linux for a lot of their workloads, and IBM has accommodated this out of necessity, but wants to retain licensing revenue and some degree of branding/control in that situation by having such customers on an Enterprise IBM Linux. RHEL more or less already owned the Enterprise Linux space, so IBM just bought them instead of developing something in-house. Along with IBM getting an Enterprise Linux brand out of it, they also seem to be hoping some RHEL customers who aren't otherwise IBM customers might be converted to buy more stuff (e.g. maybe some of them can be sold on RHEL/POWER9 servers). (Whether that justifies the valuation I don't know enough to guess on.)

chr15p 7y ago
Other way round, IBM are hoping that a lot of their customers who aren't already big Red Hat customers can be converted to using RHEL and (especially) Openshift. They already have all the sales and delivery relationships in place that they need to do really big (like 100 million to billion dollar big) deals, much bigger then anything Red Hat has been able to sell on their own. They also have relationships to sell RHEL/Openshift to IBM customers that RH struggled to get through the door of. So if they can get big growth in the number and size of Red Hat deals by selling to their existing customers then they can grow RH massively and of course all growth in Red Hat deals is growth in IBMs profits. And if they can sell some of them RHEL on POWER9 they will be very happy to take that money as well :)
- ethbro 7y ago
  And that's also a good defensive move. Given the market is moving, even IBM's major customers would eventually migrate to newer technologies. (On the order of decades) By providing something that mostly satisfies that need, IBM essentially drilled a relief well to take the pressure off. When they're ready to migrate, they could get 80% value of what a non-IBM migration would get them by moving to IBM's product. For a lot of large, slow, conservative orgs, that's good enough.
  - chr15p 7y ago
    kinda, I mean, IBM consulting have been happy to move customers off legacy IBM/AIX/DB2 onto Dell kit running Oracle on windows for decades now if thats what the customer wanted and was prepared to pay, precisely because its better to take the services revenue and the reseller margin then lose everything. So that relief well was drilled years ago, and certainly the name IBM helped with persuading those slow conservative orgs to use their services, but this predates the Red Hat acquisition by a looong time. IBM have been a major reseller of RHEL for those migrations for years, this just means they take the software as well as the services revenue, and (they hope) can sell RH software into more of those conservative accounts by bundling it under the IBM family.
DannyBee 7y ago
Everything you say was true in 2004, when i was there, and they tried to do the same thing with SuSe without buying it.
goatinaboat 7y ago
IBM's customers have been slowly transitioning from proprietary IBM OSs (AIX, z/OS) to Linux for a lot of their workloads Yes, but that’s only a coincidence. What they have really been doing is transitioning from proprietary to commodity hardware. Which IBM no longer makes. Where does IBM make money? Mainframe sales. There can be only one winner here... IBM will need to kill off their mainframe business to justify this purchase, something they have proved very reluctant to do.
- rafiki6 7y ago
  IBM makes most of their revenue from their global technology services division, followed by their software division and then global business services division. A small fraction of their revenue comes from their mainframe/hardware business now. In essence that business only lives for legacy purposes.
  - goatinaboat 7y ago
    Mainframes were driving growth as recently as last year https://www.datacenterknowledge.com/ibm/mainframes-continue-driving-bulk-ibms-growth https://www.datacenterknowledge.com/ibm/mainframes-continue-...
- josho 7y ago
  There is no reason to discontinue their mainframe business. Banks and other institutions have applications running successfully on those platforms. The industry has learned that it is better to integrate applications than to replace—especially when the replacement is a 40 year old app that runs the business. IBM’s mainframe margins are safe for decades to come.
  - goatinaboat 7y ago
    But, don’t you see the paradox there? If customers are happy with their mainframe why would they switch to Red Hat? And if they don’t want to switch why did IBM buy it?

chr15p 7y ago

Other way round, IBM are hoping that a lot of their customers who aren't already big Red Hat customers can be converted to using RHEL and (especially) Openshift. They already have all the sales and delivery relationships in place that they need to do really big (like 100 million to billion dollar big) deals, much bigger then anything Red Hat has been able to sell on their own. They also have relationships to sell RHEL/Openshift to IBM customers that RH struggled to get through the door of. So if they can get big growth in the number and size of Red Hat deals by selling to their existing customers then they can grow RH massively and of course all growth in Red Hat deals is growth in IBMs profits. And if they can sell some of them RHEL on POWER9 they will be very happy to take that money as well :)

ethbro 7y ago
And that's also a good defensive move. Given the market is moving, even IBM's major customers would eventually migrate to newer technologies. (On the order of decades) By providing something that mostly satisfies that need, IBM essentially drilled a relief well to take the pressure off. When they're ready to migrate, they could get 80% value of what a non-IBM migration would get them by moving to IBM's product. For a lot of large, slow, conservative orgs, that's good enough.
- chr15p 7y ago
  kinda, I mean, IBM consulting have been happy to move customers off legacy IBM/AIX/DB2 onto Dell kit running Oracle on windows for decades now if thats what the customer wanted and was prepared to pay, precisely because its better to take the services revenue and the reseller margin then lose everything. So that relief well was drilled years ago, and certainly the name IBM helped with persuading those slow conservative orgs to use their services, but this predates the Red Hat acquisition by a looong time. IBM have been a major reseller of RHEL for those migrations for years, this just means they take the software as well as the services revenue, and (they hope) can sell RH software into more of those conservative accounts by bundling it under the IBM family.

DannyBee 7y ago

Everything you say was true in 2004, when i was there, and they tried to do the same thing with SuSe without buying it.

goatinaboat 7y ago

IBM's customers have been slowly transitioning from proprietary IBM OSs (AIX, z/OS) to Linux for a lot of their workloads Yes, but that’s only a coincidence. What they have really been doing is transitioning from proprietary to commodity hardware. Which IBM no longer makes. Where does IBM make money? Mainframe sales. There can be only one winner here... IBM will need to kill off their mainframe business to justify this purchase, something they have proved very reluctant to do.

rafiki6 7y ago
IBM makes most of their revenue from their global technology services division, followed by their software division and then global business services division. A small fraction of their revenue comes from their mainframe/hardware business now. In essence that business only lives for legacy purposes.
- goatinaboat 7y ago
  Mainframes were driving growth as recently as last year https://www.datacenterknowledge.com/ibm/mainframes-continue-driving-bulk-ibms-growth https://www.datacenterknowledge.com/ibm/mainframes-continue-...
josho 7y ago
There is no reason to discontinue their mainframe business. Banks and other institutions have applications running successfully on those platforms. The industry has learned that it is better to integrate applications than to replace—especially when the replacement is a 40 year old app that runs the business. IBM’s mainframe margins are safe for decades to come.
- goatinaboat 7y ago
  But, don’t you see the paradox there? If customers are happy with their mainframe why would they switch to Red Hat? And if they don’t want to switch why did IBM buy it?