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Saturday, July 27, 2013

IBM’s Future in the Cloud

By Bill Moran, Rich Ptak

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 
[5]  See more details here: http://www.platformcf.com