Former IBM CEO Lou Gerstner, who turned around the company’s flagging fortunes in the 1990s, famously titled his memoir Who Says Elephants Can’t Dance?. With last week’s announcement that the company is spending $1.2bn to create a global network of public cloud datacentres, this elephant clearly hopes to dance again.
The bulk of the investment will be used to build 15 new facilities across the globe, taking IBM’s total number of datacentres to 40 and giving the company a local cloud presence in every major geography and financial centre on the planet, including London, China, Washington DC, Hong Kong, Japan, India, Canada, Mexico City and Dallas, with further expansion into Africa and the Middle East planned for 2015.
As its hardware business continues to struggle, IBM is setting its sights on capturing $7bn of the burgeoning public cloud market by 2015. To do so it is pinning its hopes on SoftLayer, the nimble cloud services provider it acquired last year for $2bn.
Nearly all of its new datacentres will be based on SoftLayer’s infrastructure as a service (IaaS) technology.
While IBM will continue to sweat the investment in its SmartCloud environment for the time being, the writing is clearly on the wall for its former flagship cloud platform.
“IBM plans to establish SoftLayer as the foundation of its wide-ranging cloud portfolio,” the company said in its announcement. “SoftLayer's flexibility and global network will also facilitate faster development, deployment and delivery of mobile, analytic and social solutions.”
The risk is that the company decides to meddle in the successful SoftLayer operations model or drapes it in endless skinny-tie bureaucracy. If this fails, IBM will finds itself right where it is today, less $1.2bn
Carl Brooks, 451 Research
Agile and flexible
Analysts have broadly welcomed the move. Carl Brooks, internet infrastructure analyst at 451 Research, said: “IBM is predicating a huge array of new growth and service delivery on the back of SoftLayer's IaaS. This lets it bring that instant-on agility and flexibility to its own internal business units, as well as to customers. Executed properly, this will put IBM in a very strong position to meet enterprise needs and develop integrated products and services at the speed today's market demands.”
Clive Longbottom, founder and service director at analyst Quocirca, said: “This is a pretty important bet by IBM. The acquisition of SoftLayer gave it the basic platform and underpinnings for a renewed attack on the cloud market after its initial attempts as ‘pure’ IBM had not met with the universal respect and awe that it expected. Pumping over $1bn into its portfolio is not just pocket money – IBM now means to get cloud right.”
But will the bet pay off? It depends on whether the company can manage its planned cloud expansion without damaging the agility that attracted it to SoftLayer in the first place. After all, you can’t make an elephant dance just by sticking it in a sparkly tutu.
“The risk is that the company decides to meddle in the successful SoftLayer operations model or drapes it in endless skinny-tie bureaucracy. If this fails, IBM will find itself right where it is today, less $1.2bn,” said Brooks.
IBM’s changing focus
- IBM revenues drop 5% as hardware sales crash
- IBM sells x86 server business to Lenovo for $2.3bn
- IBM to open London datacentre as part of $1.2bn global cloud push
- IBM cloud efforts intensify as System z, Power hardware revenues tank
- Cloud Computing Goes Global (IBM blog)
To date, it has managed the transition without too much meddling. It hasn’t scared off the customers it inherited from SoftLayer. Indeed, the company has been keen to highlight that it is now winning new business from such hip companies as UK-based Multiplay, the world’s largest online gaming platform.
“We normally think of IBM customers as being very ‘business-to-business’, but with half a million online gamers using the Multiplay system we’re moving into a new dimension,” IBM’s UK cloud leader Doug Clark told Computer Weekly.
But attracting its more traditional customers onto the platform will be key, according to Quocirca’s Longbottom.
“The trick now for IBM is in how to get its flagship customers to move towards a hybrid approach, and then to guide them towards a pure, on-demand cloud platform. It can then start to bring more of these customers' suppliers and customers onto the same platforms for performance and integration reasons,” he says.
IBM is not the speediest mover around, and a large proportion of its customers tend to be at the more conservative end of the spectrum
Clive Longbottom, Quocirca
IDC research director Mette Ahorlu believes the establishment of local cloud datacentres is an important move, particularly in Europe where regulations and customer concerns about storing and processing data abroad are most prevalent.
“If you look at the other global public cloud providers such as AWS, Google and Microsoft, their European datacentres are typically in Ireland or in the Netherlands, which with the upcoming EU data privacy legislation will be fine, but it is not good enough. So this will give IBM an advantage in these markets,” she said.
“At the same time, IBM is launching fast-track solutions – i.e. industry-specific software on the SoftLayer cloud – which will also help make SoftLayer more interesting.”
But Ahorlu adds that IBM’s cloud success is by no means guaranteed – the company must demonstrate it can overcome all the standard customer concerns with public cloud such as reliability, security and interoperability. “Bear in mind we also haven't seen any new pricing from IBM. Its clouds are typically not very cheap,” she said.
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IBM also faces stiff competition in the cloud business from AWS, Google, Microsoft, HP and the rest, but with the market growing at 30% a year and predicted to be worth around $200bn by 2015, there should be plenty to go around.
“It is not the speediest mover around, and a large proportion of its customers tend to be at the more conservative end of the spectrum. However, as they see what IBM can do – and IBM makes the use of cloud more attractive in financial terms to them – I do expect we will see a slow, steady move among its traditional big customers to a hybrid private/public cloud environment,” said Longbottom.
In other words, the elephant might not be first on the dance floor, but when it comes to the slow dance it could still work its old charm.