IBM is coming to a critical moment in time


IBM has announced that it is spinning off the company.

SiliconAngle magazine and other media and research firm analysts are not particularly fortunate. Many of them are calling it a “reasonable decision.

I agree with them about the spin-off. Given the current global climate, I think you’re right that the current CEO, whose specialty is the cloud, has not been able to get around to the global services business.

However… It’s too obvious. It’s too obvious to make an impact. Even some analysts are pointing out that the new IBM (cloud business), which is overseen by the current CEO, will need to be merged and acquired.

I don’t know the timing for this, but I do have a feeling that there will be M&A and collaboration announcements.

This time around! I would like to make a bold prediction (or fantasy) about this. By the way, if it’s M&A, it will be the acquisition of Pure Storage (NetApp), and if it’s a collaboration, it will be the discontinuation of IBM Cloud and collaboration with Google GCP.

(No, if I were to change jobs and become CEO, I’d do that, I think.)

IBM cloud situation at a critical moment

IBM explains that it’s doing well, but in layman’s terms, I’m worried that it will be okay. First of all, they say the core IBM Cloud is only growing at 20% per year.

Total cloud business revenue grew 19% (+23% on a constant currency basis) to $5.4 billion when adjusted for divestments and currency fluctuations.

Normally 20% is a phenomenal growth rate, but AWS/Microsoft Azure/Google GCP is in the neighborhood of 40%, and in IBM’s case, the total of everything from infrastructure to applications is only about 20%.

In addition, partly because of the current times, layoffs are being made to respond to changing circumstances.

But that doesn’t stop us from investing. That’s why we’re opening a data center in Osaka. Expenses are increasing.

But implementation is necessary. In Japan, we are in a situation where failures are occurring every month and service outages are occurring. We need to be able to split up and move like the independent drive system in Ironman 28.

The cloud is a sophisticated and complex system. The three major companies and others are making large investments in order to maintain stability and performance. (So if you don’t gain market scale, it’s not worth it.)

Of course, IBM has been investing heavily in the cloud for a long time, and they’ve been replacing their entire infrastructure. But they’ve been outpacing their competitors, and their growth rate has been limited to 20% per year.

Threat of Amazon Outposts

Now, Amazon intends to compete solely on AWS, while IBM’s basic strategy is to combine the IBM Cloud with other systems in a hybrid cloud.

However, with the changing global landscape, there is a growing trend to protect data at hand, especially in the government sector. At long last, Amazon has launched Amazon Outposts (local AWS system that sits at the customer’s fingertips like a refrigerator), which was originally conceived two years ago.

Just a few days ago, the company also expanded the functionality of these AWS Outposts. We’ll continue to see more enhancements in the future.

Until now, there have been countermeasures such as traditional systems that put the servers in the company’s data center (on-premise) or building your own private cloud. AWS Outposts puts a stop to that.

Amazon’s policy is to offer AWS Outposts “only when data protection and processing speed make it unavoidable”. But it goes without saying that this is a threat to its competitors, including existing IT vendors.

Why Pure Storage (NetApp)?

Now, in addition to strengthening the IBM Cloud, IBM needs to take action against AWS outposts. But what exactly should we do to counter the AWS outposts?

On this page you can see the AWS Outposts certified partners, AWS Outopsts seems to be designed for the latest complex systems such as containers/Kubernetes, and the names of AIOps vendors and distributed storage vendors are mentioned.

As for AIOps, I wasn’t sure about Watson AIOps alone, but our ally Cisco has won the certification with AppDynamics. It seems that AIOps is somehow OK.

The problem is storage. Even though they supported the expected S3, it looks good to offer a solid product. Then there are the names of NetApp and Pure Storage as major storage vendors.

Both companies are OEM partners or have a good relationship with IBM. Pure Storage in particular has a good relationship with its ally Cisco and recently acquired Persistent Storage vendor Portworx.

In fact, for IBM (Red Hat), the eye-candy is VMware. IBM’s current Persistent Storage configuration is based on VMware vSphere as a prerequisite configuration.

Our ally Cisco, by the way, has announced a system configuration that does not require VMware. But it does require KVM, a Red Hat-supported OSS.

In fact, IBM’s storage business has been experiencing declining sales, and there were fears that it would pull out like its server business at any moment. This was denied a year ago with the announcement of lineup consolidation.

IBM’s storage business is being watched by Chris Mellor of The Register, who runs a media outlet for storage/HCI. According to him, a top executive has left IBM, no matter what.

When you look at it this way, it somehow starts to look like Pure Storage and NetApp, especially Pure Storage, are the leading candidates for acquisition. This kind of analysis is often wrong, but it’s an interesting story.

Why Google GCP?

Now that we’ve looked at AWS Outposts in terms of partners, is the IBM Cloud itself safe to begin with?

Both Salesforce and RackSpace, two well-known names in IT, have moved most of their proprietary infrastructure to AWS. If IBM is able to make bold decisions, it should have no problem selling other companies’ clouds on its behalf.

Or rather, the global services division that is being spun off also handles AWS and Azure. A scenario in which New IBM sells IBM Cloud and Google GCP is not unthinkable.

If you look at the relationship aspect of the business, the head of Google GCP and the CEO of NetApp are brothers. If you have an interesting idea, it’s probably a good thing to collaborate.

As expected, AWS is slamming a challenge to all the infrastructure IT vendors, so it’s going to be hard to come to terms with IBM, the DOS feuds of the far past with Microsoft, the SQL Server/DB2 conflict, etc. The same goes for Oracle/DB2.

IBM is smart enough to let go of its pride when the situation calls for it. And many Google employees and IBM employees have a relationship with each other, as if they studied side-by-side at their desks in school.

And there are antitrust issues going on with Google right now, so carving out GCP and making it a joint operation with IBM would make it easier for them to deal with those issues.

Wrap Up

Based on the above observations, it’s likely that IB! M will push for mergers and acquisitions and collaboration after the spin-off… I mean, it will be a problem if they don’t do it.

And when they do, the possibility of Pure Storage (NetApp) or Google’s name coming up appears to exist in its own right.

Even if they don’t, there will be more business consolidation and industry reorganization in the future, such as AMD’s acquisition of Xilinx/Nvidia’s acquisition of ARM.

In any case, this is an unprecedented situation, and I hope that all parties involved can work hard and be at ease.

Sei Yotsuba