• 08/15/2013
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IBM's Cloud Business: Ex-Employee Divulges Shortfalls

Confidential IBM documents reveal the company's struggles to meet its cloud forecasts, as the SEC and Wall Street cast a skeptical eye.
Yet another internal IBM document outlines gaps in the company's cloud functionality compared with AWS's. The functional gaps include a lack of options comparable to Amazon Elastic Bean Stalk application deployment and management capabilities, Amazon Elastic MapReduce data processing capabilities, the DynamoDB cloud-based NoSQL database and the Amazon Redshift cloud-based data warehousing service.

Those are just five of the more than 20 gaps cited in the document, most of which exist because "the nature of Amazon's business and infrastructure required it to lead in cloud innovation. IBM's didn't," Babcock observes. While Amazon was steadily building AWS over the last six years, he says, "IBM did not extensively develop middleware for the cloud that aids application deployment and management. It did not develop a native NoSQL approach to data management. And IBM clearly missed the boat on cloud-based data warehousing, a spot where it could have excelled."

These differences might well explain why Amazon won a four-year, $600 million cloud contract with the Central Intelligence Agency (CIA) in February after a bakeoff against IBM. Amazon's bid was $54 million higher than IBM's, a point that led to an IBM protest and a General Accounting Office review that's still underway. Given these gaps, it's easy to imagine that Amazon's bid included a range of ready-to-use services that were just not available from IBM and that would have to be developed or sourced from a third party if required.

On Aug. 14, however, IBM announced it had won a $1 billion, ten-year cloud contract with the Department of the Interior. In this case, IBM's strengths in SAP application hosting and Unix, now available on the IBM AIX Cloud, were cited as important factors in the win. IBM is well positioned to bring legacy systems into the cloud.

Some Transparency Of Our Own

IBM didn't provide answers to a number of questions InformationWeek presented with key facts from the hundreds of pages of documentation shared by the former employee. The depth, detail, profusion of company acronyms, use of company presentation formats and citation of company locations and executive names strongly suggest that the documents are authentic.

The former employee, who says he/she was "resource actioned," says the motivation for sharing the documents is "protecting customers and ex-colleagues by getting the truth out," and the reason for doing so anonymously is fear of losing outstanding severance payments. InformationWeek's motivation is to shed light on the state of cloud competition not only with the likes of Amazon, but also Hewlett-Packard, Microsoft, Oracle and SAP.

As InformationWeek has reported extensively, HP, Microsoft, Google and others have been playing catch-up with Amazon.

IBM's $2 billion June acquisition of SoftLayer provides fresh evidence that the cloud assets and capabilities the company had before that deal weren't enough. SoftLayer data centers, its stack and its people will become "a foundation unit" in a new IBM Cloud Services division incorporating SoftLayer and SmartCloud Enterprise.

Clearly, IBM isn't simply trying to mimic AWS offerings. With SoftLayer it's trying to cater to enterprise customers. Where AWS virtualizes servers in the public cloud, SoftLayer offers the option of dedicated servers for enterprise clients that have requirements to run on the bare metal.


re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

IBM's in a bit of a quandary. Cloud is one of the fastest-growing markets, so it wants to be a leader there, but not if that push eats away at its current, higher-margin system businesses. As enterprise apps move into the cloud, requiring less of IBM's middleware and application consulting/integration services, perhaps it needs to get into that business in a bigger way.

re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

The transition would have been doable if not for the promised straight line profit growth as outlined in EPS roadmap 2015

re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

Agreed. This is a problem for all hardware vendors, including HP, Dell. Unsurprisingly, none of these companies has been able to gain traction with their cloud alternatives. However, there is time still time for new entrants into the market. In this regard, I expect IBM and HP, with their legions of IT consultants to have the inside edge, certainly vs. Dell.

re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

20-year policy of staying out of the enterprise applications business didn't set it up well for taking apps into the cloud. With SaaS, it's all about the apps, not the infrastructure and middleware behind the scenes. On IaaS, IBM's middleware and infrastructure portfolio still needs more "cloudiness."

re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

IBM lags other vendors in certain areas of cloud computing and has a need to stretch a point or two. But we could apply the yardstick of exaggerated cloud revenues to many companies; Oracle, for example, springs readily to mind. Perhaps the SEC should investigate the NIST definition of cloud computing. It would find that it describes several new ways of distributing compute cycles that don't necessarily have a lot in common. One of them, the private cloud, is found in many enterprise data centers. I believe some of IBM's server sales can be categorized as private cloud implementations. How many? I don't know. Nor am I holding my breath until the SEC audits all the claimed cloud customers for fealty to the standard. Charlie Babcock

re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

You base your report on the word of someone who signed an agreement saying they wouldn't divulge confidential information and then goes and does just that? If IBM were a country this person would be seeking political asylum somewhere else by now. These are my own personal views.

re: IBM's Cloud Business: Ex-Employee Divulges Shortfalls

Sounds like a shot across the bow of any IBM employee (or ex-employee) who might otherwise be inclined to add their two cents here. That's my personal view, anyway.