Red Hat Usage Data: IBM AI Gold Mine?
Data may have been a major – and under-appreciated – factor compelling Big Blue to plunk down $34 billion for Red Hat, a deal (the third largest in tech industry history) that closed earlier this month. The acquisition’s overt rationale, of course, is Red Hat’s open source enterprise Linux and OpenShift platforms for workload portability and interoperability across clouds and on-prem. IDC recently reported Red Hat software provides annual economic benefit of $1 trillion and nearly $7 billion in IT savings.
That much value means a lot of usage activity, and IBM may envision a gold mine in the workflow and workload data generated by Red Hat users. This data could serve as the foundation for what one observer calls an “intelligent enterprise cloud” that might boost IBM’s AI market strategy and, in turn, revitalize its competitive response to the FAANG companies, whose AI capabilities are constantly refreshed by massive intakes of customer data.
That’s the hypothesis of Intersect360 Research CEO Addison Snell, who told us Red Hat software alone "doesn't justify the premium paid."
Of the major AI players, Snell said, "IBM stands out in that they’re really a technology provider, not a hyperscale player. The other major guys (Google, Facebook, Microsoft, Apple, Amazon Web Services), they’re all hyperscalers, which is to say they’re sitting on top of massive data sets. IBM is in a sense at a disadvantage for having an AI engine but less data to feed into it. This (Red Hat) data gives IBM that resource, not at a consumer level but at an enterprise level, which is the type of business IBM really covets. This potentially gives IBM a wealth of enterprise IT insights beyond what’s accessible to their hyperscale cohorts, who might only see what data is in the cloud.”
Asked if he’s discussed his views with IBM, Snell said, “No one told me I was wrong, let’s say that.”
In announcing on July 9 that the deal had closed, IBM highlighted Red Hat’s scope, which points to the data that could be derived from usage activity. “To succeed in the next chapter of the cloud,” IBM said, “businesses need to manage their entire IT infrastructure, on and off-premises and across different clouds – private and public – in a way that is simple, consistent and integrated. Businesses are seeking one common environment they can build once and deploy in any one of the appropriate footprints to be faster and more agile… The acquisition of Red Hat further strengthens IBM as the leader in hybrid cloud for the enterprise.”
Red Hat’s functional range in IT implementations, Snell said, means user-generated data covers enterprise workflow, the kinds of applications being run, how the data flows through the system, the order of operations, and so forth. This in turn points to the complexity of modern enterprise IT infrastructures and, in turn, the role Red Hat data might play.
“If IBM is able to unleash Watson AI on that in a way that it can help IBM build essentially an intelligent enterprise cloud, and build AI into the operating environment to optimize workflow, then that potentially has incremental value over and above the assumed value of Red Hat,” Snell said.
An intelligent enterprise cloud would be an infrastructure that makes informed recommendations about the types of IT resources the enterprise needs, resources that should be placed on premises or in a cloud, when and where to schedule jobs, where to schedule jobs.
“There’s been a lot of development at the middleware layer to give administrative control,” said Snell, “but not to give intelligent recommendations about not only how to run your jobs but also what infrastructure to invest in going forward. If you get to where your enterprise infrastructure is starting to help drive your enterprise strategy, that would be a large value add.”
Assuming IBM moves in this direction, the next logical questions are whether Red Hat has collected usage data, if it’s the data IBM needs and whether it’s in usable format.
“Assuming they don’t, or if it’s not in the form IBM would want, then there’s a time lag in terms of starting to generate the data IBM needs to optimize the cloud,” said Snell. “Does that require an update to the operating system, an update to the license agreement?”
“It’s unlikely you’ll see an immediate product release saying ‘Here’s the intelligent Watson-driven Red Hat IBM Private Cloud,’” he said, “but it wouldn’t surprise me to see AI-enhanced Red Hat versions driven by Watson starting to pop up on the mid-term roadmap.”