IBM's Big Bet On The Cloud
IBM sees big opportunity in delivering cloud services to the enterprise and the SMB market as it weans unprofitable hardware business off its books. Last month, IBM agreed to sell its low-end x86 server line to Lenovo, a business that has posted seven consecutive quarters of losses as clients move to the cloud.
Also in January, IBM revealed a $1.2 billion cloud expansion effort to build up to 15 data centers on five continents to grow its SoftLayer cloud services and reach new clients and markets. Those are just the biggest deals. Over the past year IBM has made nearly a dozen smaller cloud acquisitions and forged partnerships with cloud companies as it fortifies its cloud portfolio.
IBM's cloud moves are easy to understand. Fewer midmarket and enterprise IT companies are buying hardware, opting instead to replace traditional servers with a cloud services. Cloud spending is a market research firm IDC estimates will grow 25 percent in 2014, to $100 billion.
Ginni Rometty, IBM chairman, president and CEO, has said publicly she expects IBM to do $7 billion in cloud revenue by 2015. In its most recent reporting period, IBM's cloud revenue rose 69 percent to $4.4 billion, with the bulk directly generated from cloud services and the remainder from software and services supporting the cloud.
IBM declined to break out what percentage of its cloud business goes through the channel.
SmartCloud Missteps Weaken Partner Trust
Meanwhile, some IBM partners that have been in lockstep with IBM's cloud rollout say the company's missteps have cost them.
"We worked closely with IBM's SmartCloud group and talked to customers and tried to get them interested. We couldn’t compete with Amazon or Azure. SmartCloud was expensive, high-touch, and heavy on the service model. Amazon's model was the exact opposite," said one IBM partner who asked not to be identified.
Analysts who track the cloud computing industry have given SmartCloud Enterprise bad reviews. Gartner placed IBM's SmartCloud IaaS offering at the bottom of the heap out of more than a dozen companies as part of its Magic Quadrant report. Gartner noted that SmartCloud Enterprise had weak security capabilities that made it difficult for customers to meet regulatory compliance issues, that its service-level agreement did not cover basic provisions such as when the service was unavailable for maintenance, and overall features lagged "significantly behind" its competitors.
Some partners told CRN IBM's switch from SmartCloud to SoftLayer left them with mud on their face. That's because thousands of companies paid to migrate their systems to IBM's SmartCloud only to find it was all for naught, said Alan Arnold, executive vice president and CTO with Vision Solutions, a provider of cloud replication and recovery services that was contracted by IBM to move many companies to the SmartCloud platform. "Now they're being told they have to move again. There is a big amount of frustration out there."
In an attempt to mollify irked partners, IBM gave SmartCloud Enterprise customers free access to Racemi software, which specializes in migrations across disparate platforms. But, Arnold pointed out, migration software is only one part of a headache that includes partitioning, configuring and explaining to a CTO why a second migration is needed so soon. "How do you tell a board of directors or your management team that it's going to need to prepare for another disruption in business?" Arnold said.
"We found it to be a very smooth transition in most cases," said Dennis Quan, vice president of IBM Cloud Infrastructure Services. "With every transition to SoftLayer there are a certain number of things that need to be worked through. But customer feedback has been very positive with many reporting back increased scale, performance and reliability compared to what they had before."
NEXT: SoftLayer And SmartCloud: A Study In Contrasts