UPDATED 08:47 EST / APRIL 27 2009

IBM’s Quiet Cloud

Last Thursday IBM spoke about its future cloud service plans.  They outlined a coming developer focused cloud service. They didn’t launch, price, or detail, they once again… outlined. Prediction: IBM isn’t going to make big waves in this market for some time, and this announcement caps years of rumors dating back to 2005 when they ‘outlined’ of a grand cloud developer sandbox.

image IBM has been the world’s largest hosting company for a decade with managed hosting revenues of over  $1B. They are also one of the largest IT management software companies with the Tivoli brand, and for years sold IT under the ‘On-Demand’ banner.Why are they not the #1 cloud service provider in 2009?

What’s holding back a standardized IBM cloud:

–IBM’s portfolio management drives investment in business plans with the highest margins. Standardized compute clouds cannot compare with mainframe software. This is the company that spins off low margin product groups religiously (disk, PC).

–Cloud computing is disruptive to their traditional, expensive, B2B selling model. IBM has over 35k sales people who exist to tackle non-standardized, complex sales.

–They do not have an internal IT culture based on cloud computing. The strict operational efficiency required to profitably operate lower margin cloud services is not the essence of their IT talent.

When compared to the current cloud service leader the cultural differences are stark. Amazon’s B2C sales approach, hyper-scale IT DNA, and razor thin margin model are inverse to IBM . Companies see and detect growth opportunities based on their cultural and operational basis’s. This explains why Amazon was early to this market and the major IT companies will be late.

The majors see an eventual developer and mindshare play; Amazon see’s an immediate opportunity based on their efficient cost model and expertise in web fulfillment.

If Amazon can grow its AWS revenues over $500M/year and harness significant developer mindshare this has the potential to be a train-wreck for the larger players.

They will then go shopping to fill out their portfolio and retake the space.  Microsoft has  recently released RFP’s to buy 75k volume servers this year: big checks will continue to be written to catch up. This bodes well for novel cloud start ups.


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