Today, Red Hat, the open source company focussed on enterprise IT, announced the acquisition of CoreOS, its competitor in the container market (Red Hat press release). This is clearly shaking up the enterprise application platform market and, definitely, the Kubernetes community. CNBC puts the cost of the acquisition at $250 Million, making this one of the largest Red Hat acquisitions. In this quick analysis, we take a look at this news and how it impacts the modern enterprise.
The Competition
As a startup, CoreOS went directly at Red Hat, trying to position themselves as the operating system for containers. They also built a platform called CoreOS Tectonic as the multi cloud Kubernetes distribution going against Red Hat’s OpenShift Container Platform and other application platforms in the market. CoreOS is also one of the biggest contributor to the Kubernetes project and there was speculation that they will get acquired by one of the enterprise cloud providers to effectively compete with Red hat in the space.
What it means for Red Hat?
This helps Red Hat in many ways
- It helps them emerge much stronger in Kubernetes community. Already, Red Hat is the second largest contributor to Kubernetes after Google. With Microsoft aggressively recruiting Kubernetes contributors and gaining leadership role in the committees and AWS entering CNCF and ramping up their open source efforts, keeping the leadership role in the open source community becomes a competitive advantage. By acquiring CoreOS, Red Hat is strengthening their leadership in the community and it will help them in selling to enterprise IT
- Red Hat has a strong play in every layer of the modern enterprise stack, from operating system to container engine to orchestration to the developer platform layer. Bringing CoreOS inside Red Hat strengthens this advantage
- CoreOS was not a threat to Red Hat, but it is definitely a pain in both container space and public clouds. Taking out a potential threat is a smart way to establish long term relevancy even if it comes at a huge (as per Red hat’s M&A standards) cost
- Canonical’s Ubuntu has a lead in the public clouds. By buying CoreOS, which has both developer and startup mind share, Red Hat can fend off Canonical as well as public cloud providers own version of Linux
But
- It will be interesting to see how Red Hat fits CoreOS with Project Atomic and Red Hat OpenShift. CoreOS has competing offerings in both container operating systems and application platforms. It is critical for Red Hat to position these offerings in a way that doesn’t confuse the market
- They will have to retain the Kubernetes contributors for a few years to get better ROI from this acquisition. It will be interesting to see how they fend off the talent poaching after the vesting period
I have reached out to Red Hat Analyst Team with some questions and I will update this post after we hear from them.
What it means for the competition?
This definitely starts the process of consolidation in the Kubernetes community
- Competitors are going to get aggressive in getting the attention of enterprise customers. Public cloud providers like AWS and Azure are going one step above Kubernetes to make Container as a Service seamless with AWS Fargate (which will integrate with AWS EKS soon) and Azure Container Instances. They will try to go up the stack to lock down customers inside their service
- Other platform providers like Pivotal, Docker and Mesosphere will recalibrate their strategy after this acquisition. As we pointed out in this analysis, we expect Pivotal to get rid of the technical depth underneath the platform and focus on a more developer centric platform higher up in the stack with their Spring investments and future Functions as a Service offering. We will wait and see how Docker and Mesosphere react to this development
- Expect to see some other startups in the Kubernetes space to be acquired by other enterprise vendors. Oracle is ramping up their cloud efforts. Both IBM and SAP are focussing more and more on Kubernetes. These large vendors will definitely need help in making their offerings attractive to modern enterprise and this will lead to some more acquisitions in the next year or so
What it means to Customers?
Anytime there is a consolidation in any market, customer lose choice but this round of consolidation is happening in an open source community which has emerged as a standard for container orchestration. In a way, such a consolidation in this space might accelerate container adoption and a stronger movement towards IT modernization. Many enterprise IT organizations have a strong relationship with Red Hat and this acquisition will help them stick with Red Hat as they move towards containerized workloads.
Overall an interesting acquisition by Red Hat and it all depends on how well they position the combined offerings and how well they integrate with existing products. Let us see how it shapes up.