What AT&T's Deals with IBM and Microsoft Mean for the Cloud

AT&T’s recent deals to use technology and services from IBM and Microsoft show how multivendor agreements could develop for large organizations. Last week came word of the alliance that will bring AT&T Business solutions to IBM Cloud. One day after that news, AT&T and Microsoft announced a separate partnership in which Microsoft Azure will serve as the preferred cloud provider for AT&T’s non-network infrastructure applications. AT&T also said it will get Microsoft 365 in the hands of much of its workforce. The size of telecom company AT&T makes each deal significant and that these partnerships were split across vendors speaks to the dynamics at play as organizations enact transformation plans.

The companies declined requests to comment further on these deals but a pair of industry watchers from Gartner shared their perspectives on what this all could mean in the long run.

The first deal is a multi-year strategic alliance in which AT&T will use IBM’s knowledge update and modernize internal applications for AT&T Business Solutions as part of a migration to IBM Cloud. The deal also gives AT&T Business access to Red Hat’s platform for managing applications and workloads. The companies expect this will help AT&T Business improve service to enterprise clients. On the flipside, IBM will tap AT&T Business, the primary provider of software-defined networking. The organizations already had a partnership in place with IBM using AT&T Business as its global networking provider.

The expanded relationship between AT&T and IBM raised some questions from Sid Nag, vice president, cloud services and technologies for Gartner, about what the long-term gains might be. “IBM has been struggling with their cloud initiative,” he says. “They haven’t made much traction in terms of competing with Amazon, Azure, and Google.”

There have been organizational changes within IBM, he says, and the IBM Think Conference paid special attention to multicloud. While such moves are important, Nag says the way IBM positioned itself indicates it is not looking to get into a knife fight with major cloud providers. “They are kind of tacitly admitting that what they did in terms of head-to-head competition wasn’t working,” he says. “They’ve been struggling to make a dent in the cloud business.”

Nag sees IBM adopting a multicloud services approach as an alternative. The announcement of the deal with AT&T is a way for IBM to remain part of the cloud conversation, he says, from an industry perspective. Another aspect of this is an effort to monetize the recently finalized acquisition of Red Hat. The idea is to modernize AT&T business applications through Red Hat OpenShift technology and then run them on IBM Cloud, he says.

What AT&T gets out of the deal, Nag says, is that it is building a 5G network that needs to be monetized through traffic. “They are looking to place more services on this network,” he says. That means cloud apps, cloud workloads, content distribution, Internet of Things, and edge computing -- which IBM can deliver. “Bringing all of that together generates more traffic on the 5G network and creates a need for more utilization,” he says.

There is a tradeoff to such cloud business activity that Nag says could affect IBM’s long-term plans. He framed it as the classic dilemma companies face when a disruptive technology shakes up their business models. “Whatever they do with cloud is going to cannibalize their traditional IT outsourcing services,” he says. “They literally have to change the engine of the plane while it’s in flight.”

Nag says he is curious whether or not the partnership will lead to more customer wins with enterprises that want to leverage the combined resources. “Show me a customer that is actually using all these technologies in an integrated manner and getting business benefits,” he says. “That’s what I want to see.”

Ed Anderson, research vice president and distinguished analyst with Gartner, says there is some give-and-take as AT&T cozies up more with technology companies. It brings some credibility to AT&Ts vision for edge-computing networking, but he wants to hear more details. “There’s not a lot of substance on those points at this time,” Anderson says.

The announcement with Microsoft brought up questions about cloud and AI, Anderson says, given that IBM also has AI offerings, but that technology was not explicitly mentioned in the IBM agreement. “It indicates a more generalized, multivendor, multicloud approach in the way that AT&T sees its future,” he says. “I wouldn’t be surprised to hear other announcements with other vendors in the future.”

The deals AT&T announced could be a sign of how other organizations may structure deals to further their transformation plans. Anderson says most enterprises are looking to a multicloud approach to transformation in order to preserve their options. This offers choice in in terms of best of breed, he says. It also allows AT&T to connect with the high growth cloud market, a segment he says the company has not participated much in. “It’s likely that there are many other AT&T services that could find their way into these combined solutions,” Anderson says. As this approach continues to build momentum, it could lead to technology vendors changing how they interact with their peers. “It raises the customer expectation that there will be greater interoperability between different service providers,” he says. “It also creates a secondary market of third parties that can help broker or integrate across these systems.