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On Sunday,28th Oct 2018 IBM spent $34 billion to buy a software company that gives away its primary product for free.

Red Hat best known for its Red Hat Enterprise Linux operating system. Red Hat is an open source software company that gives away the source code for its core products. That means anyone can download them for free. And many do. Oracle even uses Red Hat’s source code for its own Oracle Linux product.

"The acquisition of Red Hat is a game-changer. It changes everything about the cloud market," said Ginni Rometty, IBM Chairman, President and Chief Executive Officer. "IBM will become the world's #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.

That will come as news to Microsoft, which is, in fact, the world’s number one hybrid cloud provider. But according to IBM, the combined assets of both firms will bring a major boost to “open source as the basis for digital transformation,” using technologies such as Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation.

Red Hat is the world's leading provider of enterprise open source software solutions, using a community-powered approach to deliver reliable and high-performing Linux, hybrid cloud, container, and Kubernetes technologies. Red Hat helps customers integrate new and existing IT applications, develop cloud-native applications, standardize on our industry-leading operating system, and automate, secure, and manage complex environments.

Spending billions to acquire an open source software company might seem strange. But companies pay Red Hat to support those products, to the tune of around $3 billion in revenue each year.

Finally, the firms say that Red Hat will remain independent.

“Red Hat is still Red Hat,” Whitehurst continues. “When the transaction closes, we will be a distinct unit within IBM and I will report directly to Ginni [Rometty]. Our unwavering commitment to open source innovation remains unchanged.”

The acquisition is subject to regulatory approval and to Red Hat shareholder approval. But it is expected to close by the second half of 2019.