By Charles King, Pund-IT, Inc. January 22, 2014
IBM’s January 17th announcement of plans to expand its global cloud footprint is likely to impact the market for and expectations around cloud in significant ways. That’s partly because of the size of the commitment but is also due to IBM’s broader cloud strategy and how it believes cloud services will be purchased and used by its corporate clients.
Consider first how IBM’s plans will shape up over the next two years: By the end of 2014, the company says it will deliver cloud services from 40 data centers worldwide in 15 countries and five continents, including North America, South America, Europe, Asia and Australia. To achieve this, IBM will open 15 new facilities, adding to its existing 12 global data centers and the 13 data centers the company acquired in its 2013 purchase of SoftLayer.
Among the new data centers IBM plans to launch are locations in China, Washington, D.C., Hong Kong, London, Japan, India, Canada, Mexico City and Dallas. As a culmination of this strategy, IBM plans to have data centers in all major geographies and financial centers, and will expand further into the Middle East and Africa in 2015. In other words, within two years IBM cloud data centers will be up and running in every major market and on every continent except Antarctica. You can’t get much more “global” than that.
IBM’s Table Stakes: $1+ is
While IBM’s new cloud initiative was certainly ambitious in scope, the $1.2 billion size of the plan has a familiar ring to it. That’s probably due to other IBM strategic investments that also boasted billion-sized commitments, including the launch of the new Watson Business Unit and the cognitive computing effort earlier this month, funding the OpenPOWER open source program (September 2013) and the expansion of the company’s Flash Ahead development efforts (April 2013).
In fact, “billion” has become something of a marker for IBM’s seriousness about given issues, going back to the $1billion it committed in 1999 to developing Linux solutions across its entire solutions portfolio. Even given the eroding effects of inflation, $1 billion business deals tend to make people sit up and pay attention since it reflects both the size of the players and their interest in a particular subject. Add in how incremental and opaque most other vendors’ cloud development has been, and both the scope and near-term impact of IBM’s plan qualifies it as a very wide and deep line in the sand. Unless competitors are similarly bold and transparent, they risk becoming or at least being perceived as inconsequential.
The SoftLayer Template
Another interesting though not unexpected aspect of this announcement is the extent to which IBM’s acquisition of SoftLayer continues to shape its cloud services strategy. The deal’s $2 billion price tag surprised some industry watchers, but IBM emphasized the value of the 20,000 enterprise customers (including large majorities of the Fortune 100 and 500 lists) that SoftLayer was bringing along. Not surprisingly, many of those existing clients also worked closely with IBM, but the addition of some 2,400 new customers since the purchase closed demonstrates that demand for SoftLayer’s services is anything but static.
The variety of cloud offerings provided by IBM/SoftLayer, including supporting applications and data on dedicated hardware (in contrast to the multi-tenant infrastructures/technologies most public cloud players leverage) also contributes to the success of these solutions, as does the availability of local/regional data center facilities. That last point is particularly important for organizations bound by laws and compliance regulations regarding the location of business data, applications and processes.
But it also suggests that a gulf in understanding what constitutes or defines “enterprise-class” cloud services may be occurring or even widening. On one side are those, including IBM/SoftLayer, whose solutions were designed from the beginning with enterprises in mind and can be flexibly deployed to meet the business and legal requirements of even the largest corporate customers. On the other are numerous popular cloud players that are working hard to claim their low-cost offerings have somehow become or eventually will be enterprise-worthy.
A $1 billion expenditure certainly looks impressive on paper, but is even more so when one considers the care IBM takes with a dollar. The company is not especially parsimonious but it does require tangible, preferably strong evidence of commercial viability before opening its pocketbook.
That point was made clear in the press release related to the new cloud build-out which noted an IBM Center for Applied Insights study that estimated the global cloud market is set to grow to $200 billion by 2020, driven largely by businesses and government agencies deploying cloud services to market, sell and develop products, manage supply chains and transform business practices.
Even if it is off by half, the study’s estimated cloud market opportunity still represents a nice piece of business. If by spending $2 billion on Softlayer and another $1.2 billion to establish a global network of enterprise-ready cloud data centers IBM can capture just a tenth of that market, it is well-worth the company’s time, attention and investment.
Perhaps most importantly, the cloud build-out highlights what IBM is doing today to create a secure position for itself in years to come. Many love to talk-up similarly future-focused strategies and, given the rapid, fundamental changes continuously roiling IT markets, such efforts are crucial for ensuring vendors’ long term survival. However, close inspection often reveals shaky constructs made from pipe dreams and pixie dust.
In contrast, by leveraging the enterprise computing technologies they know very well along with innovative new developments and acquisitions like SoftLayer, IBM is building a solid foundation for cloud services that is rooted firmly in business and marketplace reality.
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