The New Normal for Open Source

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Yesterday, big tech tripped over itself with IBM’s Red Hat acquisition--for the staggering sum of $34B. Many were shocked by the news, but those that know Red Hat well--may have been less surprised. Long the leader and largest open source company in the world: Red Hat has been getting it right for many years.

Still more shocking is how this fits an albeit new pattern for 2018 and beyond. One which is completely different than the typical enterprise software acquisition of the past. Red Hat is not the first mega tech deal of the year for the  open source community. (There was the $7.5B purchase of GitHub by Microsoft, and recently the $5.2B merger of big-data rivals Cloudera and Hortonworks.)

Now, with this much larger move by IBM, it brings us to consider the importance of open source value, and contribution culture-at-large.

This was a great acquisition target for IBM:

  • They have a powerful product suite for some of the more cutting edge aspects of web development including a secure and fully managed version of Linux, hybrid cloud, containerization technology and a large and satisfied customer base;

  • their products and technologies fit perfectly against IBM’s target market of enterprise digital transformation; and

  • the deal opens up a huge market to Red Hat via Big Blue.

And in the age we live--one focused on (and fearful of) security, privacy, data domiciles, and crypto tech--a $14B valuation, over market cap (a premium of $74/share), is a validation of the open source model shining sunlight on software to achieve more secure products.

At Phase2, this news comes with much interest. Red Hat is a company that we know very well for its contributions to open source and web technology, in general. We have worked with Red Hat since 2013 and come to respect them in several key ways.

As pioneers in the commercialization of open source, Red Hat popularized and legitimized the idea that the concept of open contribution and financial gain can co-exist. While our own experimentations with productization of open source over the years within the Drupal community were certainly less publicized, we, and ostensibly the ‘industry’, looked to Red Hat as the archetype for a modern business model that could work.

We’ve had the privilege of working for, and alongside, the Red Hat team to develop many of the company’s websites over the last five years, including Redhat.com and developers.redhat.com. Through these experiences, we have come to value the way in which they blend great talent, great culture, and open values.

On many occasions, we have even drawn parallels between their business culture and our own. After reading the Open Organization by Red Hat CEO Jim Whitehurst, I was struck by the values and culture of Red Hat and their similarities with how Phase2 similarly side-eyes the future. Perhaps it was their open source ethos, collaborative approach, or the meritocracy (vs. democracy or autocracy) they fostered, but I felt like we were emulating a “big brother”.

FInally, but perhaps most importantly, we respect them as a business. The pure fact that a larger-than-life brand like IBM would pay such a premium implies both strategic and business health. I believe that,  while in part it is earned from a strong repeatable subscription-based revenue stream, nothing creates business value like a great culture of amazing people, dependable customers, and undeniable innovation.

And now with IBM’s extended reach and additional resources, we look forward to Red Hat’s continued success and partnership.

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