NelsonHall recently attended IBM SmartCloud Analyst Day in London during which IBM highlighted the most recent developments in its cloud strategy against the backdrop of its acquisition of SoftLayer, a significant player in the cloud space. SoftLayer offerings include on-demand dedicated servers and virtual cloud servers, offered in public and private models.

Since the acquisition completed on July 8, SoftLayer is being transitioned into the new IBM Cloud Services division headed by Jim Comfort, to offer a portfolio of services to IBM and SoftLayer clients, ISVs, and channel and technology partners.

With the combined offerings IBM is targeting the two cloud worlds that it believes best define the current market:

• The cloud-enabled world: with traditional applications, middleware and system of record environments e.g. ERP, where the number of existing and legacy applications that a company has can run into tens of thousands.  Here, cloud can help generate cost savings and transformation through measures such as hosting in a mixed environment of on-premise /hybrid cloud and virtualization
• The cloud-centric or cloud-native world - dominated by newer systems of engagements such as collaboration, social media interfaces and composable applications e.g. interactive dashboards. Applications in this world were developed to operate in a cloud environment from scratch.

Client requirements and solutions can span the two worlds. This is leading to different cloud conversations on the demand side of the market. A lot of CIO conversations are still about cloud enablement through measures such as consolidation and virtualization, focused on cost reduction. At the same time, business users want to see faster deployments and agile IT to increase speed to market. There are also different conversations to have with clients at the different cloud levels:

• Cost reduction, agility and faster deployment at the IaaS level
• Speed to market and deployment agility at the PaaS level
• How to compose multiple solutions together at the SaaS level.

With SoftLayer IBM is looking to enhance/complement its existing SmartCloud capabilities, allowing it to have these different conversations with its clients and to offer services that span the private and public cloud spectrum, the cloud-enabled and cloud-centric worlds as well as the different layers of cloud IaaS, PaaS and SaaS. With SoftLayer, IBM is looking to tap into the Internet-centric IaaS, designed for web native, performance-intensive applications particularly focused in the areas of mobile, social, gaming and analytics.

Overall, IBM has an embarrassment of riches when it comes to cloud capabilities. Prior to its acquisition of SoftLayer, which reportedly cost ~ $2bn, the company had already spent ~ $3bn on its cloud portfolio. This level of investment is not particularly a surprise: IBM has experience of evolving its portfolio to remain competitive. Over its 100 year lifetime, the company has proactively spotted emerging trends and morphed into new business areas when the time was right. Examples include:

• The disposal of its PC business years before the smartphone & device market derailed the laptop market
• The scrapping of its strategy not to sell software applications, in the mid-noughties, that led to it becoming a major global supplier of analytics applications through a series of acquisitions.

A current example is the imminent disposal of its CRM-related BPO services to Synnex.

With its acquisition of SoftLayer IBM, is increasing focus on the higher margin automated cloud provisioning business. It is leaping to next generation cloud technology with the intention of reverse engineering its capabilities into SoftLayer’s advanced automation. With this move, it is leaving behind traditional IT infrastructure outsourcing with a heavy dependence on labor arbitrage, an activity which has seen margins decline with the rise of Indian-centric vendors and their RIM offerings. The same vendors are also targeting the datacenter outsourcing renewals market in Europe and U.S. The expansion of IBM’s cloud capabilities increases its competitive edge.

The capability to more or less offer every cloud option to every type of client can complicate go-to-market strategies and requires clarification around priorities and messaging. IBM needs to:

1. Educate its salesforce about the differences between, and the relative merits of SmartCloud offerings and SoftLayer’s, and a coherent and aligned go-to-market strategy for both
2. Talk to clients about choices and options and the diversity of its offerings without confusing them.

Another step in the integration of SoftLayer and its global footprint is to convert or consolidate exiting IBM SmartCloud data centers to take advantage of SoftLayer technology. As they are, the two sets of data centers are not compatible. While the addition of SoftLayer's automation to some IBM datacenters is on the cards, changes to SoftLayer's are likely to include support for AIX and Linux, OpenStack and different types of storage. The changes are likely to take 18-24 months.