IBM Acquiring SoftLayer, Forming New Cloud Services Division

By Darryl K. Taft  |  Posted 2013-06-04

IBM Acquiring SoftLayer, Forming New Cloud Services Division

ORLANDO, Fla.—IBM announced a definitive agreement to acquire SoftLayer Technologies, a privately held cloud computing infrastructure provider, in a move aimed at making Big Blue more competitive in the cloud space.

The acquisition will strengthen IBM's position in cloud computing and will help speed business adoption of public and private cloud services. Financial terms were not disclosed, although various reports have said the value of the deal is about $2 billion.

"As businesses add public cloud capabilities to their on-premise IT systems, they need enterprise-grade reliability, security and management," said Erich Clementi, senior vice president of IBM Global Technology Services, in a statement. "To address this opportunity, IBM has built a portfolio of high-value private, public and hybrid cloud offerings, as well as software-as-a-service business products. With SoftLayer, IBM will accelerate the build-out of our public cloud infrastructure to give clients the broadest choice of cloud offerings to drive business innovation."

IBM is acquiring SoftLayer to make it easier and faster for clients around the world to incorporate cloud computing by marrying the speed and simplicity of SoftLayer's public cloud services with the enterprise grade reliability, security and openness of the IBM SmartCloud portfolio. One of the top reasons IBM chose SoftLayer is that it will enable IBM to marry the security, privacy and reliability of private clouds with the economy and speed of a public cloud, Robert LeBlanc, senior vice president of middleware software in IBM Software Group, told eWEEK in a June 4 interview at the IBM Innovate 2013 conference in Orlando, Fla.

"This move brings a set of capabilities to better enable public cloud support," he said. "They have unique capabilities to enable more enterprise apps and more enterprise workloads. We have a broad cloud portfolio, and this move helps to accelerate our position in that space."

Indeed, SoftLayer accelerates IBM's ability to integrate public and private clouds for its clients, with flexibility that provides deployment options that enable a faster, broader transformation for small, medium-size and large businesses with a range of performance and security models.

Based in Dallas, SoftLayer serves approximately 21,000 customers with a global cloud infrastructure platform spanning 13 data centers in the United States, Asia and Europe. Among its many cloud infrastructure services, SoftLayer enables clients to buy enterprise-class cloud services on dedicated or shared servers, offering clients a choice of where to deploy their applications. These clients will benefit greatly as new enterprise grade functionality from IBM emerges for SoftLayer customers, which will then have a unique opportunity to incorporate it as their business grows.

"SoftLayer has a strong track record with born-on-the-cloud companies, and our move today with IBM will rapidly expand that footprint globally as well as allow us to go deep into the large enterprise market," Lance Crosby, CEO of SoftLayer, said in a statement. "The compelling opportunity is connecting IBM's geographic reach, industry expertise and IBM's SmartCloud breadth with our innovative technology. Together SoftLayer and IBM expand their reach to new clients—both born-on-the-cloud and born-in-the-enterprise."

IBM expects to reach $7 billion annually in cloud revenue by the end of 2015. IBM offers more than 100 SaaS products to help marketing, procurement, e-commerce, customer service, human resources, city management and other professionals make better decisions and better serve their customers. IBM also offers Watson platforms such as Client Engagement Advisor in the cloud, products such as IBM PureSystems and SmartCloud Enterprise+, as well as mission-critical cloud services for SAP.

IBM serves enterprise customers based on its vertical industry expertise delivered from 10 cloud computing centers on five continents. The acquisition of SoftLayer will complement IBM's existing SmartCloud portfolio, providing enterprises with easy access to a broader range of choices that transform their workloads while continuing to innovate with SoftLayer to meet the needs of born-on-the-cloud firms, Big Blue officials said.

IBM Acquiring SoftLayer, Forming New Cloud Services Division

“I view this move as accretive for IBM," said Lydia Leong, a Gartner analyst and vice president of research. "SoftLayer will provide some new capabilities to IBM, but it's a bit unusual in some respect because the focus is so SMB-centric. In the long term they will move up market. So there is still a gap in the portfolio. However, this provides a developer-oriented option. SoftLayer is more closely aligned with Amazon in terms of the way they see the world."

To meet 2015 revenue and profit goals, IBM will need to "jump-start" top-line growth outside its core markets, said Matthew Casey, a software analyst at Technology Business Research.

"The acquisition of SoftLayer fits well into this approach of expanding into new markets, bringing increased exposure in two strategic growth initiatives, cloud technologies and the SMB customer segment," Casey said.

SoftLayer has shown accelerated growth in the enterprise market, but for IBM, the value is SoftLayer's foothold in the SMB space, he said.

"IBM has built its own significant cloud business, but one largely composed of large enterprise customers," Casey added. "With the addition of SoftLayer's 21,000 customers—the majority of which lie in the SMB space—IBM gains access to a global network of customers in the segment in which to sell cloud solutions."

Meanwhile, recognizing the importance of cloud to global clients, IBM today is announcing the formation of a new Cloud Services division. Following the close of the acquisition of SoftLayer, which is expected in the third quarter of 2013, this new division will combine SoftLayer with IBM SmartCloud into a global platform. The new division will provide a broad range of choices to both IBM and SoftLayer clients, ISVs, channel partners and technology partners. SoftLayer’s services will complement the existing portfolio with its focus, simplicity and speed. The division will report to Erich Clementi, senior vice president of IBM Global Technology Services.

"Our clients are telling us they want to realize the transformative benefits of cloud today—not just for individual applications, but across their entire enterprise," Clementi said. "SoftLayer is a perfect fit for IBM. It will help us smooth the transition of our global clients to the cloud faster, while enabling IBM to more efficiently offer them its broad portfolio of open IT infrastructure and software services.”

IBM intends to expand SoftLayer cloud offerings to include OpenStack capabilities, consistent with its entire SmartCloud portfolio and historic commitment to open standards such as Linux. Given that most companies will mix public and private cloud services, clouds need to interoperate. In that way, firms can better leverage the cloud to run their social, mobile and big data applications.

IBM will also support and enrich the SoftLayer cloud-centric partners and ecosystem as well as its performance capabilities for big data and analytics. IBM will provide go-to-market and customizable resources for its expanding cloud ecosystem.

SoftLayer enables clients to buy enterprise-class cloud services on dedicated or shared servers, offering clients a choice of where to deploy their applications. By building out a cloud with IBM and SoftLayer, a client can choose the work that belongs on a dedicated or a shared computing resource, thereby tailoring the privacy, data security and overall computing performance to the client's needs.

In the last two quarters, more than 60 new gaming companies have moved to the SoftLayer global platform, frequently migrating from commodity cloud platforms because of problems with cost, latency, availability and raw performance. SoftLayer's architecture provides technical capabilities such as a software-definable environment critical to a cloud infrastructure, programmable interfaces, and hundreds of hardware and network configurations. This architecture is designed to deliver a higher level of flexibility—mixing virtual and dedicated servers to fit a variety of workloads— and provide automation of interfaces and hybrid deployment options.

In addition, SoftLayer's automated networking infrastructure supports public, private and data center-to-data center architectures, and is designed to provide maximum flexibility and control for clients. The SoftLayer IT infrastructure connectivity enables connections with leading global network providers and Internet access networks.

IBM officials said that the company's SaaS products Smarter City, Smarter Commerce and other applications will be made available via SoftLayer over time, providing line-of-business clients improved time to value and new innovation across an increasingly integrated portfolio of products that accelerate business process innovation, provide analytics at the point of impact, and connect collaborative business networks within and across organizations.

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