Buying Open Source

Red Hat was recently acquired by IBM for and eye-watering $34 Billion, and while it’s the largest deal of its nature, it did get me curious as to how frequent it is for open-source companies to get involved in a bit of M&A.

To keep it simple outside of my usual IT Security wheelhouse, let’s agree (or disagree depending on how pedantic you are) to use a broad brush term for open source while accepting that some companies don’t really have open source, but rather a community edition which is free and limited.

Now that we’ve agreed to those broad limitations, it’s interesting to see that Red Hat was a pretty active acquirer in its own right prior to being on the other end of the equation.

No less than 20 acquisitions over 15 years, the most recent being in January 2018 with its $250m acquisition of CoreOS.

If you follow the open source space, this is probably nothing new to you, but I was surprised by just how buyont the market is. A quick search showed that there have been several deals this year alone, and while none were close to the $34bn IBM paid for Red Hat, the others haven’t been anything to dismiss. From Microsoft’s purchase of GitHub at $7.5bn to EQT partners laying down $2.5bn for Suse Linux.

Through this process, I guess the question that keeps popping up is “Why?”. Why did IBM acquire Red Hat, why did Microsoft acquire GitHub? Why bother acquiring an open source product at all?

Yes, we can all talk about features and complimentary technologies, and racing to the future. That’s all good. But I have another (working) theory.

Open source software, is kind of like how democracy should work. For the people by the people. People just want to get things done, and when they can’t find something that will let them do the job, they end up creating it themselves. Granted, many such endevours have a short half life, but some of them go onto bigger and better things.

And perhaps this is where the real value lies. When an open source company is acquired, it’s not being paid just for its technology. It’s the community, the tribe that weilds influence in technology strategy and adoption.

That’s not to say it’s all about the open source community. I was discussing this post with my friend Adrian Sanabria, and he summed it up nicely that it does prove that closed source doesn’t “protect IP” or necessarily make that IP any more valuable.