 From the SiliconANGLE Media office in Boston, Massachusetts, it's theCUBE. Now, here's your host, Dave Vellante. Hi everybody, this is Dave Vellante, and I want to share with you some recent survey data that talks to the IBM acquisition of Red Hat, which closed today. It's always really valuable to go out, talk to practitioners, see what they're doing, and it's a hard thing to do. It's very expensive to get this type of survey data. A lot of times it's very much out of date. You might remember, some of you might remember a company called the Infopro. It's founder and CEO was Ken Mail, and he raised some money from Gideon Gartner, and he had this awesome survey panel. Well, somehow it failed. Well, friends of mine at ETR, Enterprise Technology Research, have basically created a modern version of the Infopro. It's the Infopro on steroids with a modern interface and data science behind it. They've now been at this for 10 years. They've built the panel of 4,500 users, practitioners that they can go to. A lot of C-level folks, a lot of VP level, and then some doers down at the engineering level. And they go out and periodically survey these folks. And one of the surveys they did back in October was what do you think of the IBM Red Hat acquisition? And then they've periodically gone out and talked to customers of both Red Hat and IBM, or both, to get a sense of the sentiment. So given that the acquisition closed today, we wanted to share some of that data with you and our friends at ETR shared with us some of their drill down data with you, with us, and we're going to share it with you. So first of all, I want to summarize something that they said. Back in October, they said, we view this acquisition as less of an attempt by IBM to climb into the cloud game, cloud relevance, but rather a strategic opportunity to reboot IBM's early 1990s IT services business strategy. I couldn't agree with that more. I've said all along, this is a services play connecting OpenShift from Red Hat into the what Ginny Rometti talks about as the 80% of the install base that is still on-prem with workloads at the back end of mission critical systems that need to be modernized. That's IBM's opportunity. That's why this is a front-end loaded cash flow deal because IBM can immediately start doing business through its services organization and generate cash. They were not to say, ETR said, here IBM could position itself as the de facto IT services partner for Fortune 100, the global 2000 organizations and their digital transformations. Therefore in theory, this could reinvigorate the global services business for IBM and their overlapping customer bases could allow IBM to recapture and accelerate a great deal of service revenues that they have lost over the past few years. Again, I couldn't agree more. It's less about a cloud play. It is definitely about a multi-cloud play, which is how IBM's positioning this, but services de-risks this entire acquisition in my opinion, even though it's very large, 34 billion. Okay, I'm going to show you some data. So pull up this slide. So what ETR does is they'll go out, so this is a survey of right after the acquisition of about 132 global 2000 practitioners across a bunch of different industries, energy, utilities, financial services, government healthcare, IT telco, retail consumer. So a nice cross-section of industries and largely North America, but a healthy cross-section of EMEA and APAC. And again, these are large enterprises. So what this slide shows is condition responses, which I love condition responses, it sort of forces people to answer which of the following best describes. But this says, given IBM's intent to acquire Red Hat, do you believe your organization will be more likely to use this new combination or less likely in your digital transformation? You can see here on the left-hand side, the green is 23% positive, on the right-hand side, 13% negative. So the data doesn't necessarily support ETR's original conclusions and my belief that this is all about services momentum because most IT people are going to wait and see. So you can see the fat middle there is 64%, basically you're saying, we're going to wait and see. This really doesn't change anything. But nonetheless, you see a meaningfully more positive sentiment than negative sentiment. The bottom half of this slide shows the question is, do you believe that this acquisition makes or will make IBM a legitimate competitor in the cloud wars between AWS and Microsoft Azure? You can see on the left-hand side, it says 45% positive. Very few say, it makes it all the way on the left-hand side a very legitimate player in the cloud on par with AWS and Azure. I don't believe that's the case. But a majority said, IBM is surely better off with Red Hat than without Red Hat in the context of cloud. Again, I would agree with that. While I think this is largely a services play, it's also, as Stu Miniman pointed out in an earlier video with me, a cloud play. And you can see it's still 38% is negative. On the right-hand side, 15%, absolutely not. IBM is far behind AWS and Azure in cloud. I would tend to agree with that. But IBM is different. They're trying to bring together its entire software portfolio so it has a competitive approach. It's not trying to take Azure and AWS head-on. So you see 38% negative, 45% positive. Now, what the survey didn't do is really didn't talk to multi-cloud. This to me puts IBM at the forefront of multi-cloud. Right in there with VMware, you've got IBM Red Hat, Google with Anthos, Cisco coming at it from a network perspective and of course Microsoft leveraging its large estate of software. So maybe next time we can poke at the multi-cloud. Now, that survey was done of about over 150, about 157 in the global 2000. Sorry, that was, I apologize, that was 137. The next chart that I'm going to show you is a sentiment chart that took a pulse periodically which was 157 IT practitioners, C-level executives, VPs and IT practitioners. And what this chart shows essentially is the spending intentions for Red Hat over time. Now, the green bars are really about the adoption rates and you can see they fluctuate and it's kind of the percentage on the left-hand side and time is on the horizontal axis. The red is the replacement. We're going to replace, we're not going to buy, we're going to replace. And the middle is that fat middle we're going to stay flat. So the yellow line is essentially what ETR calls market share. It's really an indication of mind share in my opinion. And then the blue line is spending intentions net score. So what does that mean? What that means is they basically take the gray which is staying the same. They subtract out the red, which is we're doing less and they add in we're going to do more. So what does this data show? Let's focus on the blue line. So you can see slightly declining and then pretty significantly declining last summer. Maybe that's because people spend less in the summer and then really dropping coming into the announcement of the acquisition. In October of 2018, IBM announced the $34 billion acquisition of Red Hat. Look at the spike post-announcement. The sentiment went way up. Meaningful jump. Now you see a little dip in the April survey. And again, that might have been just in attenuation of the enthusiasm. Now July is going on right now. So that's why it's phased out. But we'll come back and check that data later. So, and then you can see this sort of similar trend with what they call market share, which to me is again really mind share and kind of sentiment. You can see the significant uptick in momentum coming out of the announcement. So people are generally pretty enthusiastic. And again, remember these are customers of IBM, customers of Red Hat and customers of both. Now let's see what the practitioners said. Let's go to some of the open-ended. What I love about ETR is they actually don't just do the hardcore data. They actually ask people open-ended questions. So let's put this slide up and share with you some of the drill down statements that I thought were quite relevant. The first one is right on. Assuming IBM does not try to increase subscription costs for REL, Red Hat Enterprise Linux, then it's organizational issues over sales and support should go away. This should fix an issue where enterprises were moving away from REL to lower cost alternatives with significant movement to other vendors. This plus IBM's purchase of software and deployment of Cloud Foundry will make it harder for Fortune 1000 companies to move away from IBM. So a lot of implied things in there. The first thing I want to mention is IBM has a nasty habit when it buys companies, particularly software companies, to raise prices. You certainly saw this with SPSS. You saw this with other smaller acquisitions like Ustream. Cognose customers complained about that. IBM buys software companies with large install bases. It's got a lock-in spec. It'll raise prices. It works because financially it's clearly worked for IBM but it sometimes ticks off customers. So IBM has said it's going to keep Red Hat separate. Let's see what it does from a pricing standpoint. The next comment here is kind of interesting. IBM has been trying hard to transition to Cloud Services model. However, its transition has not been successful even in the private cloud domain. So basically these guys are saying something I've said is IBM's cloud strategy essentially failed to meet its expectations. That's why it has to go out and spend $34 billion with Red Hat. Well, it's certainly transformed IBM in some respects. IBM's still largely a services company, not as competitive as cloud as it would have liked. So this guy says let alone in this fiercely competitive public cloud domain, they're not number one, one of the reasons probably the most important one is IBM itself does not have a cloud OS product. So acquiring Red Hat will give IBM some competitive advantage going forward. Interesting comments. Let's take a look at some of the other ones here. I think this is right on too. I don't think IBM's goal is to challenge AWS or Azure directly, 100% agree. They're not, it's why they got rid of the low end Intel business because it's not trying to be in the commodity businesses. They cannot compete with AWS and Azure in terms of the cost structure of cloud infrastructure, no way. It's more to go after hybrid multi-cloud. Ginni Rametti said today at the announcement we're the only hybrid multi-cloud open source vendor out there. Now the third piece of that open source I think is less important than competing in hybrid and multi-cloud. Clearly Red Hat gives IBM a better position to do this with core OS, CentOS, and so is it worth 34 billion? This individual thinks it is. So it's a vice president of a financial insurance organization. Again, IBM Strong House. So you can see here some of the other comments here for customers doing significant business with IBM global services teams, again, outsourcing. It's a 10 plus a billion dollar opportunity for IBM to monetize over the next five years in my opinion. This acquisition could help IBM drive some of those customers toward a multi-cloud strategy that also includes IBM's cloud. Yes, it's a very much of a play that will integrate services, Red Hat, Linux, OpenShift, and of course, IBM's cloud, sprinkle in a little Watson, throw in some hardware that IBM has a captive channel. So the storage guys and the server guys can sell their hardware in there if the customer doesn't care. So it's a big integrated services play. Positioning Red Hat and empowering them across legacy IBM silos will determine if this works. Couldn't agree, again, couldn't agree more. These are very insightful comments. This is largely a services and an integration play. Hybrid cloud, multi-cloud is complex. IBM loves complexity, IBM's services organization is number one in the industry. Red Hat gives it an ingredient that it didn't have before other than as a partner, IBM now owns that intellectual property and can really go hard and lean in to that services opportunity. Okay, so thanks to our friends at Enterprise Technology Research for sharing that data. And thank you for watching theCUBE. This is Dave Vellante, signing out for now. Talk to you soon.