Proving the Business Case for the Internet of Things

IBM strengthens IoT, Edge hand with Red Hat purchase

William Payne
November 1, 2018

IBM has agreed to buy open source software developer Red Hat for $34 billion. It is the largest acquistion in IBM's history, and the third largest technology merger in the history of the United States. The software developer, which gets most of its income from support and consultancy fees, will become part of IBM's Hybrid Cloud division.

The acquisition gives IBM not only a more powerful position in the cloud market, but a strong entry point to the growing market for edge computing and enterprise IoT device management, through Red Hat's OpenStack virtualisation product portfolio.

In its last financial year, Red Hat generated revenue of $2.92 billion. Operating income was $288 million, while net income was $258 million.

Red Hat gets most of its income from subscription based support and development contracts from companies using its open source developed software.

IBM is paying a 63 percent premium for Red Hat. The deal has met with scepticism among some analysts, but IBM CEO Ginni Rometty told US broadcaster CNBC that the company was paying a "fair price".

Some analysts believe that the price was bid up by interest in the open source developer from IBM rivals Microsoft, Cisco and Oracle.

Red Hat's flagship product RHEL, a version of the Linux operating system, has become widely used in cloud applications, where it is often used in Infrastructure as a Service (IaaS) private clouds, or installed in cloud containers.

RHEL has been accounting for a declining proportion of Red Hat's revenue recently. The company's OpenShift product set is a toolkit of cloud computing technologies that includes market leading products Kubernetes, a product that manages containers, and the container format tool Docker.

OpenShift is a toolset for creating and managing private clouds as well as containers. IBM's Hybrid Cloud Division, which will incorporate Red Hat, bridges both public and on-premise private clouds.

Red Hat has also developed a cloud infrastructure platform called OpenStack. This is a cloud virtualisation platform which provides Infrastructure as a Service (IaaS) computing. OpenStack is at the heart of Red Hat's IoT and edge computing technology offerings.

Among users of Red Hat's OpenStack are HP Cloud and Rackspace Cloud.

Red Hat has focused much of its development effort on how to realise edge computing for IoT and M2M devices and operational systems through its OpenStack platform. The company has positioned OpenStack as an M2M, IoT and edge computing management platform for telecommunications operators and enterprises.

The company has emphasised the ability to run OpenStack on on-premise infrastructure, and yet maintain a separation for security purposes from enterprise applications.

The OpenStack platform includes a virtualisation manager (an infrastructure as a service or IaaS abstraction), and advanced services such as traffic offload function (TOF), Radio Network Information Services (RNIS), communication services and a service registry. 

Edge computing is a fast growing area of IoT and M2M, especially in the Industrial IoT, Building, and Utility segments.