IBM takes the stealthy route to cloud success

What's better than one big brand-name cloud? 1,000 smaller ones all running on your technology — or so IBM thinks. If there's any company that can pull this strategy off, it's IBM.
Written by Jack Clark, Contributor

If you are IBM, how do you solve a problem like Amazon? Amazon's cloud has market dominance and a solid brand name, and developers seem to love it. Your cloud is relatively unknown, and young companies do not tend to use you.

Do you plough millions of dollars into developing your own complicated datacentre infrastructure, and make sure you operate it reliably? Do you hire a legion of 'evangelists', 'gurus' and 'ninjas' to go out among developers and convince them that your technology has an edge, all while trying to keep pace with Amazon's frenetic development? Probably not. How, then, do you try and take Amazon on?

If you are IBM, how do you solve a problem like Amazon? Image: IBM

Going by IBM's announcement on Wednesday, it seems the company has taken the stealthy route: it has gone to as many managed service providers as possible, bearing a sackful of money, technology and expertise, and offered them a deal.

Here's how I imagine the conversation went between IBM and telecoms companies, web hosts and similar providers:

"Listen: we know Amazon has taken share in a market that you, with your datacentres and fibre, should rightly dominate," I imagine IBM said. "We understand how frustrating this is — especially when you provide connectivity to scores of businesses, but see them going to Amazon, or Microsoft, or Google, or Salesforce for cloud technologies. We get it!

"But don't worry, we've come up with a solution. All you have to do is adopt some of our technology, and we will give you the tools — and money — to gain market share away from Amazon.

"Now you don't need to worry about the R&D cost of taking on other cloud companies — good old Big Blue is handling that! Instead, you just need to sell this technology to your customers."

To that end, IBM is going to offer managed service providers a slew of financial incentives to use IBM PureSystem technology and SmartCloud software in their datacentres. It will even let them rebrand its 'SmartCloud' technology as their own (a tactic also taken by Microsoft and OnApp). In addition, the company is opening up four "global centres of excellence" (in Shanghai, Tokyo, New York and Ehningen in Germany), where service providers can get training and technical advice on how to build their clouds.

It is paying them real money to do this: IBM is giving companies 12-month zero-percent loans so they buy or license IBM systems, software and services. It's not a vast pile of money, but it certainly shows just how hungry (and financially willing) IBM is to take share in the cloud.

Finally, IBM says it is going to devote "a significant part" of its $100m annual marketing budget for its "global ecosystem" to service providers, giving them cash with which to market the IBM systems.

Getting firms on side

So far, IBM has built relationships with over 1,400 service providers, including Peer1 Hosting and Velocity, the company said in a statement. With these on board, the company hopes it can get its technology being used by smaller businesses than the ones it typically goes after.

"Historically they would have said 'we want to own the developer relationship, sell the licences and do the hosting'," said Dominic Monkhouse, UK managing director of Peer1 hosting. "Now they're more open than they have been before.

"In terms of going direct, they've got their target market. But if they want to be relevant further down the chain, [with this announcement] there are more options now to say 'I'm going to spend a million pounds on a website' and 'I'm going to buy WebSphere'.

"They've got to have different routes to market, otherwise they'll get squeezed out altogether," Monkhouse noted.

Can IBM do it?

But will it work? If any company can do it, it's IBM. With a 500,000-strong workforce, IBM's value proposition comes not just from its technology, but from the marketing and support services it can give its customers.

"They've got to have different routes to market, otherwise they'll get squeezed out altogether" — Dominic Monkhouse, Peer1

"They are very good at delivering marketing support and [looking at] what initiatives we're running and they're running and [asking] how do they overlap?" Monkhouse said. "They've got a very slick machine in that regard."

Along with providing marketing, Monkhouse confirmed to me that IBM is good at getting technical experts to help Peer1 out with software integration as well. I imagine this extends to hardware.

In essence, IBM is trying to get its technology into a broader range of businesses than before, while outsourcing its sales approach to service providers. It's gambling that it can make its marketing, support, services and technology tasty enough that service providers will want to grab a bit of IBM and resell it.

For a smaller company, this would be a very tough thing to do — and a very big gamble. For IBM, it's much less of a risk.

A lesson from history

In my view, IBM has a good chance of making this work. I've heard stories about how far the company will go to hold onto customers — here's one told to me by someone who used to work for Digital Equipment Corporation.

This DEC employee was walking through a major British financial institution. They passed a room with a ton of expensive IBM equipment in it, and some gentlemen in suits sitting in chairs reading the newspaper. Then they got to the room with the DEC equipment in it. There were only one or two pieces of hardware, much less than in the IBM room.

"What gives, guys?" the DEC guy asked the financial institution. "You know our technology is better."

The financial institution then explained that the men sat with the IBM gear were all IBM employees, who spent every day there providing constant onsite technical support. DEC was not large enough to do anything like that. These days, DEC is long gone, and IBM is reporting record revenue.

Sometimes the tech industry is a lot less about technology versus technology and much more about service versus service. IBM is banking on having the people power and expertise to get their stack into service providers.

Editorial standards