How Red Hat could open new doors for IBM in India's cloud market

Firm's CEO is pretty upbeat about the future of hybrid cloud - which allows companies to spread their data between private and public cloud providers and has been putting good money to build expertise

IBM has lagged the overall technology sector for years: The company’s revenues for the last four years have been flat; its revenues fell for a fourth straight quarter in April-June, pointing to growing pressures on its legacy products and services. So it’s understandable why it believes the Red Hat acquisition could transform the company.

Indeed. The buy-out was the biggest deal in IBM’s 108-year history and the world’s second-largest technology takeover. The transaction closed in July and the technology giant is banking on it to open new doors in India’s cloud market. 

According to research firm Gartner, spending on cloud system infrastructure services (IaaS) will grow from $39.5 billion in 2019 to $63 billion through 2021 globally, while public cloud services revenue in India is expected to be $2.4 billion in 2019, an increase of 24.3 per cent from 2018. This means more and more enterprises will shift part of their business to cloud, which in turn would mean the need for different cloud services to “talk” to each other. 

This is where open standards play a big role, and that is the capability Red Hat brings to IBM’s table. Red Hat specialises in Linux operating systems, the most popular type of open-source software, unlike proprietary software made by Microsoft Corp. It also specialises in Kubernetes, an open source platform, originally built by Google, that helps businesses manage applications and helps them scale up. Overall, IBM-Red Hat looks at banking, financial services and insurance, telecom with a focus on software defined networks; manufacturing and government as key growth areas. 

Already Red Hat is working on several large projects in India. An oft-cited customer is the Bombay Stock Exchange, which built its trading system using open source technology from Red Hat. It also has customers in industries such as aviation, government, finance, healthcare and so on. 

In 2015, the Indian government announced a policy on adoption of open source software, which makes it mandatory that all software applications and services of the government be built using open source software, so that projects under Digital India “ensure efficiency, transparency and reliability of such services at affordable costs”. Several large projects of the Indian government, such as Aadhaar, Goods and Services Tax Network and Government e-Marketplace are built on open source software. 

“Red Hat powers the largest Linux installed base in the world, whether it is on a public cloud or in the data centre, we believe that more than 50 per cent of the Linux install base is actually Red Hat,” says Vikas Arora, cloud and cognitive software leader, IBM India/South Asia.

So its India strategy fits in perfectly with IBM’s global plans. The firm’s Chief Executive Officer Ginni Rometty is pretty upbeat about the future of hybrid cloud — which allows companies to spread their data between private and public cloud providers — and has been putting good money to build the firm’s expertise in the area. “Hybrid cloud is a trillion dollar market and we will be number one in it,” she had said at IBM’s Think conference in February. That explains why she was willing to pay a significant premium for Red Hat which dominates the hybrid cloud architecture.

Unlike Google, Amazon or Microsoft, IBM’s cloud strategy has been to help its clients work across multiple cloud environments, as more and more services begin to be hosted out of different clouds. For example, an organisation could have an email hosted on one cloud environment, an internal application hosted on their own data centre, an administrative application hosted or another cloud and so on.

“Now, when you actually go hybrid, and when they’ve (customers) got things running in different environments... we ask customers how many clouds you use? It is definitely not an intuitive answer, but our view is that our customers today use anywhere between six to 15 clouds,” says Vikas Arora, cloud and cognitive software leader, IBM India/South Asia. “It can be the biggest nightmare for administrators because now you are looking at managing all of these environments. So customers are increasingly looking for management technology, that can basically give you a single window to manage all of this infrastructure,” he adds.

In August, IBM announced IBM “Cloud Paks”, offerings that integrate IBM and Red Hat software in a way that enterprises can build applications once and run them on all leading public clouds, including Amazon Web Services, Microsoft Azure, Google Cloud Platform, Alibaba and IBM Cloud and on private clouds. The cloud paks claim to reduce development time by nearly 85 per cent, reduce operational cost and manual work. 

“Today, if you’re using any of these cloud paks, or if you're using Red Hat components and communities, and IBM software put together to address a use case, support comes from one place... one number to call. We’ve also built teams that basically jointly implement these technologies now. We’ve been hard at training our people because customers no longer want to reach out to different organisations,” Arora sums up.

Building muscle
 
How an acquisition is helping create new possibilities
 

• IBM bought Red Hat last year for $34 billion, its largest acquisition till date
• The technology giant sees a $1 billion annual opportunity for every 5 per cent customers who adopt Red Hat
• Wants to expand Red Hat to 30 new countries where it has no previous presence
• Red Hat has large engineering facilities in Pune and Bengaluru
• Big opportunity for IBM and Red Hat to cross sell to customers