Why IBM had no choice but bet $34 billion on hybrid cloud

Hybrid cloud is the new default, and IBM couldn't afford to keep missing out.

The difference between hybrid cloud, public cloud, and private cloud The biggest question in the enterprise today is often which type of cloud to run: public, private, or hybrid. However, the distinctions can be unclear, so let's define them.

IBM spent $34 billion to buy Red Hat. It didn't really have a choice.

To understand why IBM could not afford to miss out on Red Hat, look no further than the reality of hybrid computing. Historically, if IBM said "hybrid" it really meant "we have a strong position with risk-averse CIOs who want to drag out their on-prem deployments for as long as possible." Contrarily, AWS said "hybrid," and it really meant "we dominate public cloud and can afford to wait for those risk-averse CIOs to get a clue because their developers are already moving workloads to us."

But now we're in a cloudy in-between phase with huge piles of cash changing hands, and IBM's future depends upon staking a major claim to hybrid workloads.

SEE: Quick glossary: Hybrid cloud (Tech Pro Research)

A very hybrid now

It's no surprise that in our cloud-crazed world, AWS is hot and IBM is not. What is perhaps a bit surprising is how quickly interest in IBM and other tech bellwethers has cooled.

According to a recent Credit Suisse CIO survey, CIOs are happily pushing rising percentages of cash to AWS and Microsoft even as they look to significantly trim spending with IBM, Oracle, and Dell. Asked where they're prioritizing their IT spend, these same CIOs picked five top areas:

  1. Security
  2. BI/Analytics
  3. Public Cloud
  4. Hybrid Cloud
  5. AI/ML

Of these key areas, IBM's best bet is hybrid cloud. Yes, it has a large BI business, but it's based on an outdated approach to BI. And, yes, it has its Watson business for AI/ML, but the company has come under withering criticism for overselling Watson's capabilities. IBM also has a public cloud business, but not one that garners much interest (or revenue). That leaves security and hybrid cloud, only one of which puts it in a position to stabilize and grow software revenue across its portfolio: Hybrid cloud.

SEE: Cloud providers 2019: A buyer's guide (free PDF) (TechRepublic)

IBM buys a clue

IBM CEO Ginni Rometty clearly groks this, as evidenced in a recent interview:

[In] the first chapter of the cloud, a lot of customer-facing, new apps went on the public cloud. But now chapter two is [all about] mission critical. That's all on-prem that's got to move, and it's going to take containers, Kubernetes, open technologies to move those. And what you start to have to happen is people end up with...40% in private cloud and 60% in public. If you're regulated, [it's] the other way around. And then you [must] move data between and amongst those, and have to manage them. That's what we're doing.

Rometty is clearly wrong that mission critical applications are on-prem by default; historically that was true, but it's increasingly the opposite of what we see happening. Because business agility is the dominant force driving change in IT, public cloud is the easiest place to get that flexibility. Small wonder, then, that in that Credit Suisse survey, the number one vendor trusted for hybrid workloads is...AWS. Microsoft was a strong second place, but everyone else was a rounding error, including IBM and Red Hat.

SEE: With Red Hat, IBM to become the leading hybrid cloud provider (ZDNet)

Even so, companies do still have on-prem assets that need to speak to public cloud workloads. In this area Red Hat, not IBM, is the one with a credible story. OpenShift has been a booming business for Red Hat as traditional enterprises look to the open source leader for help getting applications into the cloud. What Red Hat has lacked is a sizable megaphone to get the word out. IBM, for all its problems, does offer that.

And so IBM spent $34 billion to give itself a fighting chance with CIOs and developers. Given the circumstances, it really had no other choice.

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Image: phototechno, Getty Images/iStockphoto

By Matt Asay

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.