On the morning of June 4th 2013 we learned that IBM announced its intent to acquire SoftLayer – a strategic acquisition for IBM in their quest to reach 7B of cloud revenue in 2015. Financial terms were not disclosed – but the street says the deal is valued around 2B US$.
IBM is serious about cloud
IBM has been much more active with respect to cloud since the spring of 2011 with the debut of “IBM SmartCloud” and activity has further increased in the last 6-12 months. With the endorsement of OpenStackas a standard IBM opted for the standard route of the new IBM, which is to use standards. But the pool of OpenStack vendors has become pretty crowded in the last months – basically leading to the question, how to differentiate between all those vendors endorsing OpenStack.At the same time IBM backed up their cloud ambition with the commitment to the 7B US$ goal – with the target year of 2015 coming sooner in sales cycles than one would think. A traditional route through hardware differentiation was not in the books and also not fast enough – so IBM more recently took the route of an acquisition.
Why SoftLayer makes sense for IBM
Amongst the potential acquisition targets IBM could choose from, SoftLayer makes a very good fit. Given IBM’s legacy on the hardware side, private cloud and cloud business solutions (analytics, Smarter Cities, etc) and conservative clientele – it needed a cloud player that would both be strong on the private and public cloud. That SoftLayer was building their own machines may sound counter intuitive at first – but if you take in account the recent rumors that IBM may sell their commodity server business – it starts making sense again. And while IBM has very talented hardware architects, the 8 years of experience SoftLayer has gathered building cloud hardware and vital support technology (IMS) is an asset that Constellation Research is glad IBM will leverage – one way or the other.
Moreover IBM needed the capability to let customers operate hybrid clouds – may it be to wait to write down existing on premise hardware, may it be for security and compliance reason as some part of their enterprise applications needed to remain on premise. SoftLayer is an excellent choice for this capability.
Finally SoftLayer has invested into a very robust and performing data center and network infrastructure – proven in point by SoftLayer signing up 60 gaming companies the last two quarters. Gaming is a very demanding space a vendor would only be successful in, when understanding the infrastructure requirements and being able to address them successfully and SoftLayer now has the track record to prove it.
IBM and OpenStack – business as usual
SoftLayer has been very active in the OpenStack Swift community, especially for Swift. SoftLayer does not change IBM's strategy with Openstack at all. In the contrary we would expect IBM to make more contributions to OpenStack in the short term future. On the flip side IBM needs to differentiate in the OpenStack field – so it will be interesting to see how that will be played by IBM in the next quarters.
SoftLayer and IBM SmartCloud Solutions
IBM’s SmartCloud solutions now have an even more viable platform to be deployed on –across the different flavors of the cloud – on premise, in the cloud and hybrid. This combination has the potential to bring IBM really back to the place where IBM once was over half a century ago – the essential standard choice as a hardware and services vendor for whole categories of customers.
For IBM Cloud customers
This is an exciting announcement and while it maybe a distraction in the short term, it solidifies and validates IBM’s commitment to the cloud. The flexible deployment options that SoftLayer has proven in the marketplace, are a big benefit to customers, so wait and see, how this will develop in the next few months.
For SoftLayer customers
Carefully evaluate, if you are in a customer segment where IBM wants to be in business. E.g. as a gaming company make sure you get the commitments from IBM to keep maintaining and investing in SoftLayer. IBM has stated that it plans to invest significantly in SoftLayer’s technology and grow that business and model.
For Competitors
This acquisition notches up IBM's capability and makes IBM an even more serious contender. This will definitively be felt by all the hardware vendors dabbling in cloud - e.g. HP and Dell. But it may also give some food for thought to thecloud purists at AWS and Google - as they do not offer anything private and hybrid. It definitively gives IBM a leg up against AWS in the battle for where the enterprise puts their cloud application.
For IBM
MyPOV
A very good move by IBM, other vendors recently claimed to be fully on the cloud – well IBM made clear they are in the game for real and mean to make this a multi-billion business. The next months will be interesting to see how IBM will integrate SoftLayer and tune their new go to market for the new IBM cloud products and offerings.
We will know the cloud has completely arrived at IBM, when the company will announce a cloud division – that will encompass not only the services but everything needed for a successful cloud solution – including the hardware and software. Constellation Research does not expect this to be too far out.