Is IBM-Red Hat deal reaction a sign of mega-deal fatigue? New survey sounds off

Key Analyst: Jay Lyman, Principal Analyst, Cloud Native and DevOps

Last week, we offered some initial thoughts about the IBM-Red Hat acquisition. We talked about how it seemed a strong move in favor of hybrid cloud strategies, although somewhat bittersweet for a disruptive, open source software leader like Red Hat to be acquired. Since then, we checked in with our 451 Alliance, surveying several hundred enterprise leaders to get their sentiments on the deal, as we did three years ago in a similar Voice of the Enterprise survey about Dell-EMC.
IBM Red Hat survey blog image 1 overall impressionsAt first look, the overall impression about IBM’s acquisition of Red Hat was predominately neutral (40%), with only 20% of respondents saying they feel at least somewhat positive about the announcement, and 23% saying they feel somewhat negative. Looking at this data made us think about our 2015 survey on the $67 billion Dell-EMC deal. Similarly, respondents to the Dell-EMC survey felt mostly neutral about the deal (50%), although other responses leaned more positive when compared to the IBM-Red Hat acquisition survey, where 24% felt somewhat positive and only 16% felt somewhat negative.

While the majority of respondents to both surveys had a neutral outlook, the IBM-Red Hat acquisition has a more negative impression by comparison. This acquisition should carry the same weight of the Dell-EMC acquisition, even though one is more focused on hardware compared to software. So why is the sentiment so different? It may be a case of mega-deal fatigue.
IBM Red Hat survey blog image 2 negative impression reasonsWhen respondents were asked why they felt negatively about the IBM-Red Hat deal, the top reasons were: the companies are not a good fit (22%), there will be more vendor lock-in (20%), and this deal will limit product innovation (13%). Considering the IBM/Red Hat survey's open-ended responses, many of our neutral respondents had an apprehensive and confused tone. In addition, a lot of them want to be sure that IBM doesn’t change the Red Hat model and products, while others don’t understand the value of the acquisition. 

As one respondent put it in the open-ended verbatim section of the survey: “Technology companies continue to purchase other technology companies, thus reducing the solution landscape. Consolidation continues and that is not a particularly a good thing.”

Despite this M&A fatigue, the way we look at it, M&A deals in this space can be defined as successful if “1+1=3.” In other words, something new and impactful needs to result from the deal. The key question is whether IBM can truly maintain Red Hat’s independence, model and culture and thus its value in the market. The potential is in continued availability and integration of Red Hat software such as RHEL and OpenShift across the major public cloud providers, and the power of IBM’s sales and channel to sell it. The peril lies in Red Hat simply getting absorbed into IBM – as we’ve seen with previous Big Blue acquisitions such as Informix, Rational Software and SoftLayer.
IBM Red Hat survey blog image 3 positive impressionsWhile IBM and Red Hat represent very different cultures, they are both open source-savvy companies – a point that survey respondents seem to acknowledge. They also highlight multi-cloud improvements as a driver of positive sentiment about the deal. Respondents with a positive outlook on the deal believe open source (21%) and multi-cloud (18%) will improve as a result. 

Our survey results indicate a muted impact in the minds of enterprise IT professionals, who may have grown weary of mega-deals and more limited options in the market. There is customer concern around culture clash, vendor lock-in, and diminished innovation. However, there is also customer enthusiasm for a complementary pairing, open source and multi-cloud improvement as the acquisition unfolds.

IBM and Red Hat are no strangers, having collaborated extensively on critical enterprise software such as Linux and OpenStack in the past. If the combined company can build on those collaborations and integrations, while also maintaining the critical collaborations and integrations Red Hat has independently forged with the likes of AWS, Google and Microsoft, then customers stand to benefit. If IBM imposes significant changes in how Red Hat or its employees operate, then customer fears about another good set of technology lost to consolidation may, unfortunately, be realized.

We will have more content on this deal coming soon in the Research Dashboard. For now, check out this deal analysis.

Our Voice of the Enterprise research offers survey-based insight into the minds of IT decision makers, and tracks sentiment and intentions about technology adoption, IT spending priorities and drivers, and vendor selection. Voice of the Enterprise: Servers & Converged Infrastructure provides ongoing enterprise perspectives on the shift from traditional servers to new, hybrid approaches to computing.
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