IBM Forecasts $7 Billion In Cloud Revenue

The firm is plunging fully into the cloud, launching a range of cloud services tuned to the needs of enterprise users.

Charles Babcock, Editor at Large, Cloud

April 6, 2011

5 Min Read

Senior VP Steve Mills will flesh out IBM's cloud computing strategy at an event in San Francisco Thursday, emphasizing IBM's vision of recognizing "client defined clouds" and cloud resources customized for individual customers.

Cloud computing is no longer an area of investigation and experiment for IBM. CFO Mark Loughridge has stated he believes cloud services will generate $7 billion in revenue for IBM by 2015.

It's basing its approach on its interactions with existing customers, such as FritoLay, American Airlines, and IndiaFirst, over the last four years. "The cloud is not one thing, one size fits all," said Ric Telford, VP of cloud services, in an interview Wednesday in advance of the event.

"Over the last few years, there's been a lot of tire kicking. Then you get to the more mainstream adoption. We feel we are entering that wave of computing now," he said.

That means, in addition to offering basic cloud infrastructure, IBM will offer services to help customers build their on-premises, private clouds or integrate their data center operations with external cloud suppliers. It expects the IBM cloud to be primary target of such efforts, but doesn't rule out using its expertise in integration to connect to Amazon EC2, Rackspace, or other public cloud suppliers, said Telford.

That's because it's been warned repeatedly by enterprise customers that they do not wish to encounter another round of vendor lock-in when they move to cloud computing. "One of the inhibitors to adopting cloud computing is the possibility of being locked into proprietary interfaces," Telford noted.

To emphasize its above-the-fray stance, IBM is launching a Cloud Standards Customer Council to define requirements and "influence the existing standards bodies," Telford said. Potential targets for its guidance include the DMTF, which set the Open Virtualization Format for virtual machine portability, and the Open Group, a vendor body that set the SOA Reference Architecture.

In terms of its own offerings, IBM will emphasize the ability of customers to define what type of cloud service they want, rather than offering an Amazon-like approach of, "Here's our infrastructure. Come and use it as is."

"We've seen Amazon go after a different kind of customer. We're dealing with the enterprise customer," claimed Telford. At the same time, he said IBM is mindful that Amazon Web Services, the business unit responsible for EC2, has set the bar on what cloud suppliers can charge. "Our basic pricing will be similar to what you see at Amazon," but IBM will add charges for its enterprise oriented services on top of those prices, he acknowledged.

Customers will choose one or more of five dimensions that IBM will offer as a way of allowing the customer to define his own cloud service. If a customer wants a secure cloud, IBM says it will deliver it. If the customer wants a high-performance, supercomputer type of service, IBM will deliver that. If it wants a closely monitored and managed cloud, IBM will provide that type of service too, Mills is expected to claim at the San Francisco event.

An IBM document allows customers to calculate monthly charges based on the cloud services they want. IBM will package its cloud services as a basic infrastructure offering of servers, storage, and software in the IBM Smart Cloud Enterprise, or as a more customized offering in Smart Cloud Enterprise Plus, where customers may set certain elasticity requirements. IBM load balancing would add more servers as demand on a customer's application increases to meet that elasticity need. "Plus" service would also offer backup and recovery services.

Public cloud services frequently offer load balancing, but backup and recovery has often been left to the discretion of the customer and his ability to implement a second set of servers and have them available in the cloud, loaded with the same application and data as his primary server.

For the first time, IBM will offer its true blue customers (i.e., IBM shops that have bought IBM Power chip servers, from mainframes to p Series) the option of using its own Power chip servers in the cloud to run IBM Unix (AIX) applications. In the past, IBM's cloud, like Terremark's, Amazon's EC2, or Google's App Engine, ran software designed for Intel's commodity x86 instruction set servers.

IBM software development and testing facilities in its Research Triangle Park, N.C., data center, one of its early cloud offerings, for example, were all based on x86 architecture. IBM's other four cloud data centers are located in Toronto, Singapore, Boulder, Colo., and Ehningen, Germany.

IBM will also follow Amazon Web Services and Rackspace in offering enterprises the option of building out a private cloud in an IBM data center accessed over the Internet. IBM will offer guarantees of isolation, security, and dedicated servers to the customer, if they desire them. Telford said "private cloud" is an extension of IBM's experience in offering hosted and outsourced services for the enterprise.

In addition, IBM will offer SAP applications as software as a service (SaaS). It has previously offered SAP apps as an outsourced service, but a cloud SAP offering would mean new efficiencies for customers. SAP users often run 4-5 instances of a SAP application, with one used for testing, one being updated as the next production system, and another being used for related development. In the cloud, the customer will be able to invoke such occasional uses as needed, without keeping all five running all the time, leading to considerable savings, he maintained.

IBM acquired several young cloud computing companies to get the technology that brought it to Thursday's announcements. They include Cast Iron Systems, an integration company, for an undisclosed amount last May; Coremetrics, a supplier of Web analytics and online sales metrics that IBM expects to offer as a cloud service, last June; Sterling Commerce, a B2B supply chain software supplier, for $1.4 billion last May; and Unica, a marketing automation software maker for $480 million last August, Telford said. IBM has spent a total $3 billion on cloud acquisitions, he added.

Of the $7 billion in expected 2015 cloud revenue, $4 billion will be gained by existing IBM business units expanding into cloud services, and $3 billion will be new or incremental revenue to IBM's existing business, he said.

About the Author(s)

Charles Babcock

Editor at Large, Cloud

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive Week. He is a graduate of Syracuse University where he obtained a bachelor's degree in journalism. He joined the publication in 2003.

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