Digital Edition

SYS-CON.TV
SoftLayer – IBM's New Quarterback for the Cloud
SoftLayer has a lot to offer for IBM and IBM seems to appreciate the new capabilities and innovations

What typically happens to smaller firms when they are being eaten up by mega-companies like IBM seems pretty obvious - they go to the dogs. Key executives will leave the team, product roadmaps will lose their binding character and strategy will get fuzzy due to the sheer magnitude of the organization and its inherent complexity. But not so with SoftLayer / IBM.

It has become obvious over the past 6 months that IBM's senior management had more in mind than a pure opportunistic acquisition when they bought hosting firm SoftLayer in the summer of 2013 for 2 billion USD. Eric Clementi who was among the early cloud advocates within IBM has made a strategic bet that will enable IBM to regain its position as one of the key cloud leaders in the market over the next 2-3 years.

SoftLayer - IBM´s New Strategic Asset
IBM has officially dedicated over 1.2 billion USD in additional investments to its new cloud data center infrastructure. That makes roughly 80-100 million USD for each of the 15 newly planned data center locations (15 new DCs adding to 13 SoftLayer and 15 IBM data centers) that will cover all geographic regions. Although IBM has tremendous in-house expertise when it comes to building and operating data center facilities, the new cloud data centers will follow the blueprint of SoftLayer. Why's that?

As a typical hosting provider SoftLayer not only commands a highly scalable data center architecture with over 80,000 running servers, it is foremost a highly cost-efficient data center operations and broad set of services that makes it attractive for IBM to switch platforms from its own IBM SmartCloud to the SoftLayer platform. What SoftLayer also brings to the table is a substantial revenue share. Crisp Research estimates the annual revenue for 2013 to be around 520 million USD. Given the new investments and the IBM brand as a backing for enterprise deals - 2014 revenue can easily be around 600 million up to 1 billion USD.

Within a positive market scenario the new IBM/SoftLayer business unit is likely to surpass 4 billion USD in revenue within the next 5 years and thereby contributing up to 10% of IBM GTS revenue by the end of 2018.

SoftLayer to Become IBM's Prime Cloud Delivery Platform
But this is only possible if IBM will stick to its current roadmap and make SoftLayer the prime cloud delivery platform for its new SaaS and PaaS offerings. As of today IBM plans to make most of its software portfolio accessible as cloud services - within shared, hybrid and private cloud environments. For example, the CloudFoundry-based IBM Bluemix-offerings (PaaS) is already being hosted on the SoftLayer platform. The same will happen to new collaboration services (e.g., Connect), infrastructure management solutions and even "Watson"-based analytics services.

There is even more evidence that IBM is getting down to business with SoftLayer. Relatively unnoticed IBM has migrated hundreds of customers from its SmartCloud to the SoftLayer platform over the past 5 months. It could be said that this was one of the largest cloud migrations (vendor-to-vendor) - by the number of clients - but not in terms of capacity. Most of the workloads were "under the radar" applications.

The IBM SmartCloud has been never been more than a stepchild in IBM's overall strategy. The platform was not capable of handling thousands of agile and scalable web workloads in a competitive operations model. Thereby the IBM senior management team has come to the right decision - let SoftLayer grow - shut SmartCloud down.

Bare Metal Cloud Hosting - The Secret Sauce in the IaaS Market?

Over the past 5 years the cloud market has come a long way in terms of technical maturity and overall adoption. What vendors and CIOs both learned alike is that there is a clear demand for different types of cloud infrastructure services. One-size-fits all virtual machines are not the right solution for all customers. Workloads have highly differentiated characteristics. Especially for advanced workloads "dedicated performance" instead of mellow SLAs can help customers sleep better. Business cases vary in terms of flexibility and cost. As more and more workloads are migrated toward the cloud, "cost prediction" becomes key to numerous CIOs and CTOs. To cover baseline infrastructure capacity, reserved resources (e.g., bare metal or dedicated VMs) help to save budget. These savings can be allocated to innovative projects or to cover "peak" capacity.

The market for infrastructure-as-a-service (IaaS) is still under development and covers a large spectrum of providers and delivery models. It ranges from the large public cloud platform providers AWS, Google and Microsoft Azure, which offer mainly standardized services, to the classical managed service providers with their private cloud offerings. That gap is being bridged by a small number of hosting firms that have transformed their portfolio in the direction of cloud. SoftLayer is among the group of Host Europe Group, OVH, Rackspace, et al, that combines agility, dedicated performance and cost predictability in the right balance with solid support operations. Looking at the growth numbers delivered by this peer group over the last few years we can reason that the "cloud hosting" model has a huge fan base in the market. This is mainly true for SMB customers, eCommerce firms and part of the startup world.

Remaining Questions and Outlook
SoftLayer has a lot to offer for IBM and IBM seems to appreciate the new capabilities and innovations. But some strategic questions are not answered yet. For example: How does the SoftLayer hosting business fits with the IBM high-margin model in the long run? Even when IBM is able to drag enterprise customers (who are willing to pay more for dedicated compute power then for virtual compute power) onto its new platform the IaaS business will not have the same margins like the mainframe business.

One next question relates to IBM´s plan to migrate its entire software portfolio to the cloud ("SaaS First"). The ambitious growth plan for SoftLayer will only pay off if the migration and go-to-market for the different software solutions is successful and well communicated. Currently it is not quite clear which of the hundreds of software solutions are able to run in the cloud and which of them will be migrated first.

But the most important question is: Will IBM stick to its plan? From the perspective of Crisp Research there is no way out. After the current announcements customers are betting on IBM SoftLayer. SmartCloud is not a trusted platform any longer and will go to the dead pool. IBM´s current activities look very promising. But competition is fierce. Rich Miller estimated a whopping 7.3 billion USD that were spend by Google in 2013 to expand its data center and network capacity (up from 3.2 billion USD in 2012).

With SoftLayer as its new cloud quarterback IBM is back in the game. The next 12-18 month will show, if AWS, Microsoft and Google will get serious competition in the cloud capacity game where "economies of scale" dictate the rules.

About Carlo Velten
Dr. Carlo Velten is founding partner and managing director of ITresearch and advisory firm Crisp Research. As senior analyst Carlo oversees the research and advisory initiatives at Crisp Research. Carlo is a seasoned industry expert with over 15 years of working experience as IT analyst. He helped numerous leading companies to transform their enterprise IT-platforms into agile cloud-based environments. He also advises large tech vendors regarding strategy, business model transformation and marketing excellence.

Before starting Crisp Research he was senior advisor and board member at European IT research firm Experton Group where he co-led the “Cloud Computing & Innovation Practice“. Prior to that he was the senior analyst at German research firm TechConsult. Carlo is a well-known speaker and moderator at industry events and contributing editor at Computerwoche and CIO magazine. He is a judging panel member for the “Best in Cloud Awards” of IDG and long-term research partner of tech association BITKOM.

Carlo holds a M.Sc. and PhD. in venture capital. He was research fellow at San José State University, CA. and partner at transatlantic venture firm GENES Ventures. Carlo serves as board member for the Managerkreis - a well-known think tank of the Friedrich Ebert Foundation based in Berlin.

In order to post a comment you need to be registered and logged in.

Register | Sign-in

Reader Feedback: Page 1 of 1



ADS BY GOOGLE
Subscribe to the World's Most Powerful Newsletters

ADS BY GOOGLE

Modern software design has fundamentally changed how we manage applications, causing many to turn to...
In this presentation, you will learn first hand what works and what doesn't while architecting and d...
In an era of historic innovation fueled by unprecedented access to data and technology, the low cost...
In his session at 20th Cloud Expo, Mike Johnston, an infrastructure engineer at Supergiant.io, discu...
Everyone wants the rainbow - reduced IT costs, scalability, continuity, flexibility, manageability, ...
DXWorldEXPO | CloudEXPO are the world's most influential, independent events where Cloud Computing w...
Founded in 2000, Chetu Inc. is a global provider of customized software development solutions and IT...
DevOpsSummit New York 2018, colocated with CloudEXPO | DXWorldEXPO New York 2018 will be held Novemb...
Most DevOps journeys involve several phases of maturity. Research shows that the inflection point wh...
SYS-CON Events announced today that DatacenterDynamics has been named “Media Sponsor” of SYS-CON's 1...
CloudEXPO New York 2018, colocated with DXWorldEXPO New York 2018 will be held November 11-13, 2018,...
Dynatrace is an application performance management software company with products for the informatio...
DXWordEXPO New York 2018, colocated with CloudEXPO New York 2018 will be held November 11-13, 2018, ...
@DevOpsSummit at Cloud Expo, taking place November 12-13 in New York City, NY, is co-located with 22...
Today, we have more data to manage than ever. We also have better algorithms that help us access our...
A valuable conference experience generates new contacts, sales leads, potential strategic partners a...
Bill Schmarzo, author of "Big Data: Understanding How Data Powers Big Business" and "Big Data MBA: D...
DXWorldEXPO LLC announced today that ICOHOLDER named "Media Sponsor" of Miami Blockchain Event by Fi...
SYS-CON Events announced today that IoT Global Network has been named “Media Sponsor” of SYS-CON's @...
The best way to leverage your Cloud Expo presence as a sponsor and exhibitor is to plan your news an...