Successful companies are
continually challenged with how to approach and deal with new and potentially
disruptive technologies. At one extreme is a decision to ignore the new
technology entirely. In some cases, this might be the best approach. It is
certainly possible that a new technology will be a marketplace failure. In that
case, most, if not all of the investment made in the technology is lost as is
any invested human capital. There is also an opportunity cost incurred because assets
and resources were unavailable to work in a more profitable area. On the other
hand, if the new technology is a market success, the company has lost revenue
and market share. They may or may not be able to catch up and recover what was
lost.
As a result, smart
companies, such as IBM, attempt a balanced approach that is informed by their
best efforts at assessing the potential impact as well as success of the new
technology. At times, this means deciding to allow a new technology time to
mature sufficiently to establish its success. At that point, they must be ready
to make a major move in the marketplace to establish a firm position with the technology.
IBM has been successful in
the past at timing its major move into a technology. For example, other
companies pioneered the development, introduction and use of UNIX. While IBM entered
the game late, today they dominate the UNIX marketplace[1].
IBM made its first moves
into the cloud, as a provider of infrastructure, products and services to cloud
service providers and builders. They expanded these over time.
Clearly today, they
recognize that the cloud marketplace has reached a maturity level that requires
them to make even more significant major moves to expand their presence and
influence.
Let’s look at several key
moves and initiatives, recent and older, that IBM has undertaken. The first was
the company's investment in its existing range of cloud service offerings. The
payback was made apparent when IBM presented the results for the first half of
2013. They announced the IBM cloud business had grown by 70% during the first 6
months of the year. Although the company didn’t reveal the base from which they
measured this growth, it is a very sharp and positive increase when many
companies are not reporting much growth. IBM is clearly investing in both sales
and development to expand and extend its current cloud offerings.
Next, consider what is
occurring in the competition to provide cloud services. A recent example is the
contest between IBM and Amazon for the CIA Cloud procurement. We discussed this
item in some detail here[2]. We will not repeat ourselves. However, it is worth
pointing out that of the original five competitors for this contract, three
were eliminated or dropped out leaving the two finalists, IBM and Amazon. IBM
clearly was out to prove that they were the key competitor to Amazon and they
succeeded.
The third item (and
probably the most important) was IBM’s purchase of SoftLayer, the world’s largest
privately owned cloud company. Although the purchase price was not disclosed,
business press rumors put it in the neighborhood of $2 billion. Clearly, this move
greatly strengthens IBM’s position in and demonstrates its commitment to the
cloud marketplace. We discuss implications of the purchase in a commentary
available here[3].
The final action taken
recently by IBM is the announcement of an alliance between IBM and Pivotal. The
two companies agreed to cooperate to develop Cloud Foundry as a Platform as a Service[4] (PaaS). With their
combined resources added to already existing support, we believe that Cloud
Foundry has significant potential to develop into a widely used and influential
cloud platform. IBM plans to integrate Cloud Foundry into it’s open cloud
architecture. Repeating earlier successful strategies for Linux and OpenStack,
IBM will fully support Cloud Foundry as an open, collaborative platform for
developing cloud applications. Due to earlier work with Pivotal, IBM has
already deployed a lightweight version of WebSphere on the platform. Finally,
the two companies and GE are co-hosting Platform:
The Cloud Foundry Conference as a community building event for developers
of cloud applications on September 8-9 in Santa Clara, CA.[5]
After reviewing these
initiatives, there are risks for IBM. One example is the challenge of
integrating the staff of acquired companies i.e. SoftLayer, into IBM without
demoralizing them or reducing their marketplace momentum. IBM must also integrate
products, strategies and messaging into existing IBM versions of these. If they
meet these and other implementation challenges, IBM can establish itself as the
key Amazon competitor as the cloud market grows and matures.
[1]
In fact, such early movers as DEC, SCO, etc. failed long ago.
[4]
Pivotal’s announcement of the IBM agreement: http://gopivotal.com/about-pivotal/press-center/07242013-IBM
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