Key takeaways from IBM's European cloud analyst conference

In the second week of June 2015, IBM held an analyst conference regarding its cloud offerings. It turned out that IBM's offerings are superb, but the messages around its cloud offerings show room for improvement.

During the conference, we got the impression that IBM is getting its act together in the cloud business. Over the last three years, IBM has invested heavily in its cloud portfolio. Initially, the offerings were fragmented and not aligned. This situation seems to have been overcome by now. Strategic imperatives have been defined and the tactics are clear. The four key strategic directions include hybrid offerings, working with the open community to deliver innovations, winning the infrastructure race, and capturing the hearts and minds of developers. To implement this strategy, IBM relies on three major tactical directions: It established a cloud unit in early 2015, it has been expanding its SoftLayer offerings, and it wants to inject cloud initiatives into customers' business.

IBM interprets the meaning of "hybrid" pretty broadly. In line with the prevalent interpretation, it is used as a synonym for implementing a mix of private cloud and public cloud services. However, this is not the only meaning. In addition, "hybrid" can also be interpreted as the parallel development of traditional business and new business based on the digital transformation paradigm. Being only engaged in new business will not pay the bills. Therefore, enterprises need to become more efficient in managing the cash cows and more effective in addressing new business. Additionally, the "privacy" topic also requires a hybrid approach. Clearly, private data needs to stay private. But weather data is not private at all. It may be retrieved from cloud providers and adapted and transformed into business problems, e.g., to determine how many soft drinks need to be ordered by a retail shop if a sharp increase in temperature is expected. However, weather data becomes private when used in connection with a specific person, e.g., when dedicated offerings for soft drinks are sent to customers' mobile phones or if an offer for a specific raincoat is sent to a mobile device when it is known that the user of this device is browsing a shop with a special offer and it starts to rain. This means the multidimensional interpretation of "hybrid" matches IBM's cloud approach. It is a broad set of different offerings allowing customers with different entry points to select an IBM cloud solution dedicated to their special needs. The price IBM has to pay for this is a messy cloud message to the market. As one IBM manager said: "We love when it gets messy; we have the knowledge and the tools to sort out the mess".

This can be seen as a clear but also difficult to position message for IBM's cloud offerings. We think that IBM has to work on its cloud message for a sharper positioning in the market.

On the product and services side, IBM overinvested in its cloud offering in the past because the company wants to survive the expected shakeout in the market for cloud infrastructure offerings. Commodity offerings, e.g., providing a virtual machine, may not be a sustainable future cloud business model because the margins are simply too low.

For this reason, IBM is focusing very much on open source (Cloud Foundry, OpenStack, Docker) and on value-added services, which have been bundled in its Blumix offering. Currently, more than 140 micro apps are available, with 2-3 additional micro apps being added every month. This has become a comprehensive offering that differentiates the IBM cloud platform from competitive cloud offerings. It is worth a look because most of the services allow large transaction volumes without any costs. This is part of IBM's strategy to win the hearts and minds of developers. The main impression was that it is easy to build new applications (partially with simple graphical tools), easy to deploy, and cost-effective to maintain.
There are also about 20 Watson apps offered as part of Blumix. Some of them are quite attractive and position IBM clearly ahead of the competition.

Another feature is also unique in the IBM cloud offering. IBM differentiates between its SoftLayer offerings (now with six data centers in Europe) and its Cloud Managed Services (CMS), which are supported out of a different set of dedicated data centers. However, clients may mix and match the offerings from the different data centers - which may also be interpreted as a "hybrid" approach - and not pay for any data transfer from one data center to the other. This is possible because the links between the data centers are private lines. This also means enhanced security because the public Internet is not involved at all.

Bottom line: IBM's cloud offering can be seen as the broadest offering in the industry. However, this is both a strength and a weakness at the same time. Customers can benefit from the wide range of services available at very attractive prices; but IBM needs to find a way to transport its cloud message not only to large enterprises, but also to small and medium-sized businesses in order to get the reach and business volumes required to maintain a sustainable and profitable business.