IBM is a bit of a unique case, given the portfolio churn the company has been witnessing. IBM appears to have straddled between an incumbent and challenger, finally settling in as a major player in the cloud integration (hybrid cloud space) still wanting to sell some of its own cloud. IBM shocked the markets last October with the announcement of its Red Hat deal. The surprise was more to do with the size of the deal that IBM was undertaking and for the asset that the company was purchasing.
The Cognitive Solutions business was IBM’s beacon of light; with the Red Hat buy, IBM gained more prominence in the hybrid cloud market. Recognizing the importance of keeping technology services business separate from its core cloud business, IBM had moved its core cloud business from within technology services and bundled it with the ‘Cognitive Solutions’ business. The combination of Cognitive and cloud is likely to help IBM productize much of the company’s technological prowess into its own cloud. Factors that favor IBM’s position in the evolving cloud market are:
The company’s long history of enterprise relationships (something extremely critical to scale up the cloud and the associated SI work), especially as the IBM helps its client wade the challenge beyond that of the ‘low hanging fruit’ of cloud migrations.
IBM’s commitment towards the cloud (the Red Hat acquisition is by far one of the largest deals in tech) appears to be quite serious and looks in line with that of a company looking to re-invent itself.
Some aspects that are also likely to contribute to IBM’s position in the overall cloud order are:
The Red Hat acquisition is likely to upend IBM’s business model from that of a large, legacy, enterprise software, hardware and services vendor to that of a leaner cloud and legacy solutions provider. The changes in the business model are likely to also necessitate management level changes to keep the momentum intact. As of the time of writing this article, Arvind Krishna, a three-decade IBM veteran, heads Cloud and Cognitive Software. Taking a cue from Microsoft’s history, IBM could significantly strengthen its position in the cloud/hybrid space, should the head of the cloud be also leading the broader portfolio of the company's assets to better align them with the overall company philosophy. Ginni Rometty’s absence from the last couple of earnings calls may just be the first hint of an imminent change. However, clarity about management will be paramount for IBM to be able to convince customers of the company’s technology vision to be that of a marathon rather than of a sprint.
With the Red Hat acquisition, IBM has been targeting the $1 trillion hybrid cloud market and it could make sense to not compete with the big public cloud players. However, as the world becomes increasingly multi-cloud, customers have been trying to avoid vendor lock-ins. IBM’s cloud is an excellent alternative for customers wanting to increase the diversification of their underlying base of assets while trusting IBM with the abstraction to be provided (hybrid management), to ensure standardization and smooth operations. However, to adopt this strategy, the management may need to enhance its messaging and steer clear of coming across as a competitor aiming to become one of the top three in the public cloud provider market.
Since the first half of the last year, the IBM management had been trying to build a narrative around the potential of its hybrid cloud strategy. Subsequently, while the core cloud business may have slowed a bit, the SI bookings have remained fairly strong. Expected closure of the Red Hat deal in the second half of this year and the IBM’s messaging around its cloud strategy could potentially make IBM stand out in the hybrid cloud world.