IBM's cloud strategy: Will it become the best in the business?

Feature IBM wants your cloudy dollars – and it’s making an extremely aggressive play to be the market leader in enterprise cloud computing.

In some minds, however, it already is.

Exhibit A: chief executive Virginia Rometty, in an open letter to investors published as part of the company’s 2013 annual report, spelled it out: “IBM today is the leader in enterprise cloud.”

The reason? Investment. Big Blue has shelled out $7bn on 15 acquisitions, with Rometty singling out the purchase of IaaS provider SoftLayer above all else. The latest move was earlier in March, when the company announced it was to push $1bn of resources and investments into cloud, rolling out SoftLayer in new geographies and providing a developer-friendly PaaS offering called BlueMix.

In other words, the 102-year-old International Business Machines now sees itself as a cloud company first and foremost. For Doug Clark (left), cloud leader at IBM UK & Ireland, it’s a matter of being in the right place at the right time.

“The portfolio that we’ve got now is absolutely industry-beating across almost every dimension,” he tells CloudTech. “I don’t mean that in an arrogant way, but every conversation I have with clients and customers, the products that we’ve got in our toolkit...seem to have real resonance in terms of what clients are trying to do.

“That’s across the entire landscape, whether clients are starting with a traditional enterprise perspective and wanting to migrate, or at least evaluate cloud, or whether that’s talking to newer businesses that are being born on the cloud.

“I think our portfolio is broad enough and rich enough that there’s a little bit of something in there for everybody,” he adds.

It’s big talk, but it’s impossible to deny the richness of IBM’s market proposition on its own merits. From PureSystems, which gives a ‘cloud-in-a-box’ styled capability for those looking for a quick fix, to SmartCloud Orchestrator which standardises services allowing traditional IT and cloud to work in harmony – not to mention a private modular cloud, deeper IaaS offerings and IBM’s own hosted cloud environments – it leaves no stone unturned.

“It gives us the opportunity then to really focus on what the client’s trying to do from a business point of view, and to have an architecture that’s fit for purpose rather than try and shoehorn those clients into the limited offerings we may have,” Clark explains.

He adds: “It gives the clients the real best of both worlds, whether they need burstability, resilience, five nines, security, whatever it might be.

“Each of those workloads is solid as a rock on its own merits.”

The ace in IBM’s pack

This isn’t to mention IBM’s much-lauded patent division, which Clark believes gives the company an extra boost in seeing off the competition.

Clark himself holds a patent in IBM. As one of the few “salesy people” within the company who has one, he asserts this innovation is in the company’s DNA.

“The patents that we’re generating are patents that are having real stickiness in cloud,” Clark explains, citing the ‘noisy neighbour’ patent approved in October last year as key. 

With US Patent #8,352,953, Big Blue is trying to use software defined networking (SDN) to ensure virtual machines give consistent network performance even if one application on the host server is slurping up all the bandwidth.

“Nothing ever stops in IBM,” he continues. “It’s always being challenged, and evolved, and patents are key to that.”

Watson, having long since graduated from game show champion to doctor, is another potential ace in the pack. At Mobile World Congress Rometty challenged developers to create mobile apps which can take advantage of Watson’s technology.

Developers are key to any project getting off the ground, naturally, but for Clark it’s all about combining everything.

“Whereas I see cloud as being an enabler almost underneath a lot of these other growth areas, I see analytics, and Watson, and cognitive computing as being fundamental as well,” he says. “I see that all these big chunks of capability are all starting to overlay into one another, not to conflict but actually to augment.

“Watson’s going to bring a huge amount of value into that space,” Clark adds. “Ultimately it’s that urgency, accuracy and relevance that’s going to be the game changer for those customers of ours.”

Clark maintains IBM is “blessed” to have such hefty resources. But resources and investment alone isn’t enough to get the market share. What’s underlining all this?

From hardware to software, to social and mobile

Clark is a disciple at the altar of Gartner – in particular, the analyst house’s ‘Nexus of Forces’ vision of social, mobile, cloud and information. He practices what he preaches, with cloud underpinning the social, mobile and analytics-heavy future IBM envisages – with his job being to tie all the parts together.

“Each of the traditional brands within IBM, they’ve all got specifics around cloud that is helping them drive growth,” Clark explains. “From my point of view it’s sewing the whole storyboard together and making an exciting proposition for clients, and that’s whether the clients are public sector, third sector or enterprises, small or large,” he adds.

This move into social, mobile and analytics with cloud underpinning it reminds CloudTech of SAP HANA. Back in January the German tech giant released its quarterly results, with the company revising its target of €3bn and €3.5bn cloud revenue from 2015 and 2017.

The company didn’t say it outright, but the conclusion everyone drew was that short-term, SAP was struggling to replace its traditional hardware revenues as it gradually becomes a cloud company.

Long-term, it shouldn’t be an issue. But is a similar process happening at Big Blue?

“I believe so,” Clark says, adding this thinking might have fuelled the recent decision to sell IBM’s server business to Lenovo for $2.3bn.

“We’re seeing the centre of gravity move,” he continues. “It’s been cited by a number of market watchers where the real value of cloud is, and it’s moving up the stack.

“We’re not letting go of our systems space, but I think we’re being more specific about which bits fit with which part of where the growth is going, and each element within IBM needs to justify its position as we go forwards – and I think that was the background behind the Lenovo announcement.”

This resonates sonorously with what Rometty wrote in her annual letter, telling shareholders that the big challenge for this year would be “shifting the IBM hardware business for new realities and opportunities.”

“The modern demands of big data, cloud and mobile require enterprise-strength computing, and no other company can match IBM’s ongoing capabilities and commitment to developing those essential technologies,” the IBM CEO wrote, adding: “But let me be clear - we are not exiting hardware.”

It’s this swiftness in cutting off and remoulding areas which aren’t performing gives Big Blue the edge on the rest of the pack, Clark argues.

“A lot of people talk about one of the fundamental assets of cloud as pay as you go, pay as you grow, being an OPEX rather than a CAPEX model,” he explains. “And I think that’s where other organisations are perhaps struggling a little bit, because they have a perhaps biased portfolio around one particular element.

“IBM is blessed in that it’s got a big consulting arm, it’s got a big technology services arm. Whether that’s delivering short term services engagements around specific projects...or it’s implementing desktop management, or whatever it might be, we’ve got a services level there but we also do the very big business process services where we might actually be almost running the entire function for a client.”

Clark adds: “Some things are really coming into their own and some things are maybe moving slightly out of the heart of the IBM strategy. We are constantly in change in IBM, and it’s really just a realignment.”

2013 to 2014: Could do better?

Virginia Rometty’s annual letter to shareholders, as well as stating IBM was the leader in enterprise cloud, also said: “We must acknowledge that while 2013 was an important year of transformation, our performance did not meet our expectations."

Revenue down 5% as reported and 2% at constant currency, operating pre-tax income down 8% - not figures which are burning up the stratosphere, but it’s fair to say these are occupational hazards when such a heavy transformation is taking place.

The hardware biz is being transformed, though not eroded, and cloths need to be cut accordingly. As reported by InfoWorld’s Bill Snyder, IBM SVP software and cloud Robert LeBlanc told the New York Times: “The model is different in the cloud. It is a little more self-service. I don’t need as much SGA (sales, general business, and administrative costs)”.

Given IBM began resource action – or in other words, layoffs – at the back end of February, with Industry Leaders Magazine reporting 25% layoffs in the hardware division, it doesn’t take much thought to link the two.

No comment was offered on the resource actions when CloudTech enquired, however Clark was happy to discuss general financial trends, explaining that IBM was still on track for its 2015 trajectory of having $7bn of revenue based on cloud.

Some of that would be swapping over from more traditional offerings in the IBM portfolio, but Clark contends that “generally speaking” the majority of that revenue would come from new business.

“I think in this OPEX environment that actually is even more exacerbated, if you think about it in terms of volume rather than value,” he explains.

“A lot of these new areas we’ve been talking about – mobile, social analytics, the systems engagement workloads, and a lot of growth market activities we’ve got in the other geographies...gives us that kind of opportunity to grow into a broader client base but also into workloads that are only just starting to manifest.

“We’re definitely on that trajectory, to get to that sales target that we publicised at the corporate level.”

For all its future gazing, IBM remains a company with a huge history.

Those with good memories will remember Big Blue trying to leverage that history to derail Amazon’s awarding of a lucrative $600m CIA cloud computing contract – unsuccessfully as it turned out – with IBM telling CloudTech back in August the company has “been delivering trusted and secure cloud services to business and government clients for many years”.

Clark argues this ‘safety margin’ of “a lot of heritage, a lot of understanding and pedigree of the market, a lot of insight coming from the consulting arm, and a lot of technical knowledge and insight around governance of IT systems” helps clients grow beyond their best.

“I think there’s a lot of very complementary skills in IBM that can help those enterprise who are really bold really drive some bold, ambitious plans,” he explains, “and I think it’s up to the rest of the IBM corporations to work with the other clients and help them along that learning curve as quickly as possible.

“You’re going to get a very polarised market very quickly if all you’re trying to do – which I think some cloud companies are doing – is really just optimising IT,” he continues.

“There’s a huge difference between optimising IT and going to the lowest cost model versus actually using all of the capabilities that cloud and these other growth missions bring to drive completely new business models for not just new clients, but existing clients as well.”

This is the overall sense you get after speaking with Clark. Never mind all the research which says Amazon is killing the market; here’s someone who’s in the right place, at the right time, with a potentially game-changing ecosystem to augment IBM’s cloud solutions.

And even though 2013 wasn’t a banner year, if the sales targets are hit, who cares about the competition?

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