International Business Machines Corp.’s recent acquisition of Red Hat Inc. is aimed squarely at building up its cloud business—in part by making it easier for IBM customers to use competing cloud services.
Red Hat’s open-source software enables chief information officers and other enterprise IT managers to run applications both within their own data centers and across a range of third-party providers, from IBM’s own cloud to Amazon.com Inc. ’s AWS, Microsoft Corp ’s Azure, or any other tech company that rents computer software and systems to businesses online.
“Public clouds are a big partner of ours,” says Red Hat Chief Executive Jim Whitehurst, “but they are basically saying ‘Come into my world and use all of my stuff.’”
Mr. Whitehurst says the ability to shift business applications between different cloud providers—known as a hybrid cloud strategy—is proving popular with CIOs as a way to minimize the risk of relying on a single tech service to handle a company’s entire information-technology system.
It also lets them shop around for a wider mix of cloud-based tools and emerging capabilities spread across an increasingly competitive market, Mr. Whitehurst says.
Revenue from IBM’s cloud business climbed 5% year-over-year in the second quarter, even as the tech giant posted its fourth straight quarter of declining revenue overall, but it remains far behind the pace of revenue growth set by Amazon and Microsoft.
IBM’s $34 billion deal to buy Red Hat, which closed in July, seeks to boost its standing in the market by drawing more businesses to hybrid cloud strategies.
Mr. Whitehurst spoke with CIO Journal on Tuesday about Red Hat’s role in that strategy, along with its place within IBM. Edited excerpts are below:
Some industry analysts worry about Red Hat’s independence under IBM. How is that working relationship shaking out?
I think the reason a lot of acquisitions fail is that there’s a reason somebody wants to sell. Generally, the reason they want to sell probably doesn’t mean they think there’s this wonderful, rosy future. Our view is that we’re at the beginning of a fundamental change in how technology is going to be built and consumed that is driven by open source.
Could we do it by ourselves? Maybe. But I think we thought the probability was small and being part of a bigger company was something we really wanted. Speaking for the senior team at Red Hat, we’re all still in and driving this. I think we have a real opportunity.
How is the cultural fit?
I’m the only dual-badged employee and that is absolutely intentional. We are a separate stand-alone subsidiary. This is two cultures working together, not coming together. There is a clear recognition from both organizations that we have very strong cultures and very different ways of operating that generate different capabilities.
The great news is that those capabilities are highly complementary. Typically if you jam things together you get the worst of both, not the best of both. And so we try to be really clear that we are separate companies. Let’s recognize the power of the other model and let’s work together.
Why is hybrid cloud compelling to CIOs and how does Red Hat help achieve it?
Not only does it reduce costs, it allows for a greater pace of innovation to occur, because you’re not hamstrung by all these incompatible vertical stacks. While there are other people talking about it, we are the only ones to deliver a hybrid platform.
This is why IBM bought us. OpenShift, which is our container platform, is the only way to have a consistent container platform that runs on any of the major clouds. You write code once and you can run it anywhere. That’s what’s compelling. I can innovate faster and protect myself from being locked in.
How does all this foster innovation?
The beauty of the Red Hat model is we get to sit and observe and dip our toe into a whole set of technologies and see what emerges. The majority of innovation is happening in open source, without a doubt. When something emerges as the next big thing, we’re just already more deeply into that.
Writing software and giving it away is a really bad business model. That is not what we do. We get involved in existing open-source communities and then we help commercialize and make it consumable. Open source is user-driven innovation. It’s users that have an issue and they solve that issue themselves. Big data emerged not because someone sat back and said we need a way to access data at scale. It was iterative issues that Facebook had, and Google had, and Yahoo had, and slowly built over time.
the fact that a worker’s wealth and well-being is much more dependent upon her employer than the employer is on a given worker tilts things in the employer’s favor.
.. Two trends demonstrate the decline of labor and the ascent of business. Since 1979, after-tax corporate profits as a share of gross domestic product have grown by 22.8 percent, while the share of nonfarm business sector income going to labor has dropped by 10.3 percent.
The decline in worker bargaining power in the United States is the cumulative effect of numerous small and large changes over recent decades reaching into almost every area of law and policy. This combines with a decline in the enforcement of existing laws that could protect workers’ bargaining power — laws protecting unions, laws against wage theft, nondiscrimination laws, and more.
.. Among these changes is the requirement that employees sign what are known as “noncompete” and “no-raid” agreements, both of which restrict workers’ ability to extract pay hikes by threatening to take similar jobs at competing companies.
.. “less than half of workers who have non-competes also report possessing trade secrets.”
When entry-level workers at fast food restaurants are asked to sign two-year non-competes, it becomes less plausible that trade secrets are always the primary motivation for such agreements.
.. The treasury report estimated that 30 million American workers have signed noncompete agreements.
.. 94 percent of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.
The growing emphasis on “shareholder value” has provided additional justification for all of these anti-worker developments.
.. “the shareholder value movement starting in the late 1980s and now institutionalized through industry analysts” was crucially important in the devaluation of employees:
.. Accounting in business is mainly about costs. Finance people hate fixed costs because of the challenges they raise to share price valuation when there is uncertainty, and the biggest fixed costs are labor. Simply moving the same labor costs from employees to outside staffing companies moves it from one part of the accounting ledger to another and makes analysts happier.
This mentality, in turn, encourages “the use of temps and contractors” to fill high-wage jobs because “that way the employer doesn’t have to raise wages for all their employees.”
.. Companies could outsource work to areas with cheaper labor and less of a union presence. This both weakened the union and ramped up competitive pressure on the companies that were unionized. The result was fewer unions.
.. In 2017, 6.5 percent of the private sector work force was unionized, down from 35 percent in 1955.
.. The contemporary weakness of organized labor and the threatened status of employees has roots in the breakdown in the 1970s of the postwar capital-labor accord — what A.H. Raskin, the legendary labor reporter for The Times, called a “live-and-let-live relationship” that held sway for 30 years.
.. First, they would alter antitrust enforcement to require consideration of the likely effect of mergers on concentration in the labor market, in order to prevent “too high a risk of wage suppression.”
.. Second, Krueger and Posner would support legislation making noncompete agreements “uniformly unenforceable and banned if they govern a worker who earns less than the median wage in her state.”
.. ban no-poaching arrangements altogether:
We propose a per se rule against no-poaching agreements regardless of whether they are used outside or within franchises. In other words, no-poaching agreements would be considered illegal regardless of the circumstances of their use.
.. In the 2016 election, Trump profited from the conviction of rural and working-class voters that they were on a downward trajectory. If anything, Trump appears to be gambling that letting those voters’ lives continue to languish will work to his advantage in 2020.
.. His administration has turned the executive branch, the federal courts and the regulatory agencies into the sworn enemy of workers, organized and unorganized. Trump is indisputably indifferent to the plight of anyone in the bottom half of the income distribution:
- look at his appointments,
- look at his record in office,
- look back at his business career and
- look at the man himself.