game strategy

by Joshua Whitney Allen

As the world embraces cloud, will IBM’s new cloud strategy survive the competition?

Published November 25, 2014


Perceived as one of the business world’s most bureaucratic institutions, IBM has been impressively transparent in advancing its new, cloud-focused marketing mix.

Citing its unsatisfying fiscal performance, the firm’s head, Ginni Rometty, told the world that the future of her 103-year old company rests in the cloud. Since then, the tech and business media has seen a stream of cloud announcements, many that describes connections between IBM and a partner—often a government agency or healthcare provider—that will deploy major assets on Big Blue’s cloud technology.

IBM’s strategy is inspired by immense expectations for the cloud economy. Research firm GMR data values the 2014 cloud market at $75 billion. IDC predicts that public cloud spending will reach $127 billion by 2018. By then, IDC claims, “public IT cloud services will account for more than half of worldwide software, server, and storage spending growth.”

Such numbers are alluring for any executive who must draw a profit out of the worldwide tech demand. Every type of player in the IT space—the multinational giant and the small vendor—will strain for some of that profit. So what does IBM have to do right as it banks its wellbeing on the viability of cloud markets? Seen as an ancient and faceless corporation by some, IBM is proposing that its fortunes rest in one of IT’s most competitive and evolving sectors. The American firm must also show a diplomatic, worldly grace to find success beyond the saturated tech markets of North America and Europe. Is the excitement over cloud enough for IBM to return to form? And is IBM sufficiently dashing and savvy enough to sell to every corner of the world?

As far as the technology goes, “this is only the beginning for cloud,” says Tina Gravel, vice president and general manager, Cloud Business Unit, Dimension Data. “If we’re talking about cloud as a delivery platform for software, I think the risk associated with [a cloud strategy] is almost nil. Cloud is not only disruptive and enabling growth, but is the centerpiece to the next generation data center.

Yet competition in the cloud space will create a level of pressure that IBM must endure if it hopes to succeed. “If the application is operated in a ‘software as a service’ model by a vendor with superior security, understanding of the code and the technologies employed, then upgrades to a better approach and process will almost surely be led by the market and the provider will comply to stay relevant,” says Gravel.

IBM must also anticipate the end strategies of the firms that make ideal targets for Big Blue’s business-to-business sales efforts. “When you buy cloud technology, you move into an operating expenditure model,” says Lim May-Ann, executive director for the Asia Cloud Computing Association. “For a CFO, it means that the total number of assets is zero. That has caused some problems at the upper echelons of business, because if you’re offering an IPO, you can’t say ‘my company is valued at zero dollars.’ That doesn’t make any sense.”

IBM’s ambition will lead it to operate around the world with greater energy. Yet the human terrain of each continent can be unstable in points and outright obstructionist in others. Throughout Europe, nations climb out of recession at varying rates, with the most influential societies in the region’s west producing numbers that are not inspiring. Security concerns arise when operating in the Middle East, and beyond Brazil, the Latin American economy offers little opportunity for growth.

IBM appears to be pushing into the Asia-Pacific region with enthusiasm, partnering with banks, highway authorities, and telecommunications providers.

“In Asia, [cloud’s rise] has been driven, especially in the developing countries, because the cost of devices has gone down, so we’re seeing more and more people using computers,” says May-Ann. “Their first interactions with the digital age are with mobile devices. We’ve seen that happen in Indonesia, and we’re going to see it in Myanmar.”

May-Ann, who is based in Singapore, noted the challenges Western firms face when operating in Asia-Pac. “Language is an issue; culture is an issue; the sheer diversity of the area; the idea that you change countries so quickly [geographically]. [There is] a lot of historical protectionism, a lot of culture legacies that you need to be aware of,” she says.

“A lot of companies and have difficulty getting talent for developing local teams. In Indonesia, there isn’t one language—Japanese, Balinese—each sector and area is controlled by the governor. You need to be very relational, and it takes a lot of time.”

Yet adoption expands in Asia, an evolutionary pattern that IBM has surely noted. “We had the three Es of government cloud: education, exploration, and experimentation,” says May-Ann. “Now, what we’re seeing is a bit more of a nuanced pick up. Singapore and Vietnam recently established guidelines for outsourcing. Financial services guidelines have also taken shape in Singapore.

“Australia’s government also announced that they wouldn’t have any prohibition over using the cloud for government.”

Observers remain optimistic about the evolution of cloud concepts. “Can you imagine what data will be collected and accessed when the promise of the ‘Internet of Things’ is more realized?,” asks Gravel. “The real power is that you only have to pay for the cycles of running that query as you need to, with the superior compute utilization that cloud computing offers. Cloud computing can reduce the cost of storage and through economies of scale, can offer more options to suit what is stored.”

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