IBM: Cloud Computing Will Cannibalize Other Parts Of The IT Business

IBM expects the adoption of cloud computing to add significant growth to its business over the next five years even as it cannibalizes much of its existing business.

Richard Michos, vice president of channel strategy for IBM, told a group of solution providers attending the Xchange Tech Innovators conference on Wednesday that cloud computing is one of four "megatrends" IBM expects to impact its goal to increase business over the next five years, and that they had better prepared for those impacts.

IBM is planning on earning $20 per share by 2015, compared to about $11.45 per share now, Michos said. "Obviously, we have a lot to do in a short time," he told the solution providers. "And we can only do it with you."

One of those megatrends is cloud computing, which IBM expects to add about $3 billion of net growth to its business by 2015. IBM is investing about $6 billion in R&D for cloud computing, he said.

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However, lest solution providers think $3 billion is not a big deal to a company like IBM, Michos said that to reach that goal will require IBM actually grow its cloud business by $12 billion, as the growth in cloud computing is expected to erase $9 billion worth of sales of its current hardware, software, and services.

That cannibalism of existing business by the growth in cloud computing caused Juan Rosario, owner of Daroc Computing, an Texas, El Paso-based solution provider, to stop and think about the impact of cloud computing on his business.

"For a small businessman like me, with small shops and repair shops, the cloud will be a threat," Rosario said. "Seventy percent of my business comes from fixing things. One of the promises of the cloud is that there is no virus, no software upgrades."

Rosario said he is afraid the cloud could one day put small companies like his out of business. "I need to look at how to use the cloud," he said.

Phillip Durant, president of American Computer Enterprises, a Daphne, Alabama-based solution provider, said that Michos certainly showed the importance of being part of the move to adopt cloud computing.

"If IBM is focused on the cloud and putting $6 billion in R&D into the cloud, it shows us we need to be there," he said.

Michos told solution providers to not worry about whether IBM will swoop in and grab cloud customers from them. "Won't happen," he said. "We don't have the manpower to do that."

NEXT: Other Megatrends Impacting Future Business For The Channel

The cloud is not the only place solution providers need to be, Michos said.

IBM is also hoping to bring its channel partners to participate in three other megatrends that the vendor is counting on to help it meet its $20-per-share goal, Michos said.

One of those is the move towards is IBM's "Smarter Planet" initiative, which Michos said includes analyzing patterns in such things as traffic flow and electricity in order to find ways to make them more efficient.

Michos said this is an area were success is helping CEOs or the mayors of cities understand how new technology can increase efficiencies, with IBM and its partners being trusted advisors about the technology they are presenting to solve customer problems even if they do not have the specific expertise related to the customer's processes.

"In California, we have people working on water management," he said. "How much do we know about water management? Zero. Nothing."

Michos said that Smarter Planet initiatives could add $10 billion in IBM revenue by 2015, which means opportunities for partners. "We don't have the reach to do it ourselves," he said.

The third megatrend is business insight, an area in which IBM has been heavily investing by acquiring a host of vendors including Cognos and SPSS and then making their offerings available to the channel.

Business analytics, which IBM expects to contribute about 20 percent of its growth through 2015, does not require rocket science, Michos said. "It requires training and certification," he said. "And we provide it to you."

The fourth megatrend is a focus on growth markets, or fast-growing markets outside the U.S. Michos said growth markets will account for about 25 percent of IBM's total revenue by 2015, and will contribute about 50 percent of IBM's growth during that time.

For that reason, Michos told solution providers to look at how they can take advantage of growth markets, either by working with overseas customers or by partnering with others who already do so.

Michos said it is important for solution providers to look at where they can work with IBM to take advantage of some of the most important growth opportunities going forward.

"We hope that you as a business partner working with us will leverage these changes to be more profitable," he said.