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IBM is getting dead serious about the cloud.
During Big Blue’s earnings Webcast on January 20, IBM senior vice president and chief financial officer, Martin Schroeter, made a statement that indicates just how serious IBM plans to be about the cloud going forward. In response to a question about the company’s acquisition strategy, Schroeter said in the future IBM will look to acquire more “as-a-Service” entities and will focus less on adding companies that provide on-premise solutions to the IBM portfolio.
“More of our acquisitions will be on an as-a-Service basis as opposed to an on-premise model,” Schroeter said. “We see a lot of opportunity to expand in the as-a-Service space.”
In his prepared remarks for the Webcast, Schroeter said IBM’s cloud revenue in 2014 was up 60 percent to $7 billion, as the company has seen growing client demands for higher-value cloud solutions across public, private and hybrid clouds. In addition, revenue from IBM’s as-a-Service offerings increased about 75 percent to $3 billion in 2014.
“We exited 2014 with an annual run rate for our as-a-Service business of three and a half billion dollars,” Schroeter said. He noted that the $7 billion also includes revenue from IBM’s foundational offerings, where the company provides software, hardware and services to clients to build private clouds.
IT industry analyst Rob Enderle, founder of the Enderle Group, said IBM’s acquisition plans resembles a trend IBM launched back in the early days of the mainframe.
“This showcases that IBM is aggressively pivoting into the cloud services market,” Enderle said. “At scale they recognize that long term on-premise products may simply not be able to compete with services and they want to make sure that they are prepared to ride that wave not be buried by it. Ironically, this mirrors closely the original IBM mainframe model where the hardware was supplied as a service, a model IBM should have never broken from.”
Charles King, principal analyst at Pund-IT, agreed but added that the strategy may have further implications for IBM overall services business.
“At one level, Schroeter’s comment has implications for the company’s cloud business,” King said. “But it could also be highly complementary to IBM’s larger services portfolio which drives a majority of the company’s revenues and delivers higher profit margins that other divisions.”
At the same time, King said he thinks IBM’s strategy reflects an understanding within the company that its infrastructure hardware and software portfolios are essentially complete.
“The sale of System x and microelectronics concentrated IBM’s focus on its higher margin Power and mainframe hardware,” King said. “Plus, I think it’s arguable that IBM’s middleware assets are broader and deeper than any of its competitors. In essence, unless some entirely new, revolutionary hardware or software hits the market, expanding its service offerings seems like the wisest goal for IBM’s future acquisitions.”
IBM Targets Future Cloud Acquisitions
Schroeter said IBM views acquisitions as a way to complement the company’s organically grown innovations and to build out its view of enterprise IT. “Our strategy is built around our view of the future of enterprise IT,” he said. Moreover, “We’ve been successful partnering with leading companies like we do with Apple and Twitter. We don’t have to own all the technology to bring it to our clients. So you’ll see more partnerships.”
IBM has been among the more acquisitive IT companies over the last several years. Big Blue acquired six companies in 2014: Cloudant, Silverpop, CrossIdeas, Lighthouse Security Group, Aspera and Cognea. IBM acquired Cloudant, a database-as-a-service (DBaaS) provider, in February. IBM acquired the Silverpop marketing automation solution to add to its portfolio of more than 120 Software-as-a-Service offerings in April. IBM acquired CrossIdeas, with provides security software to protect data across on-premise and cloud environments, in July. And IBM acquired Lighthouse Security Group, a cloud security services provider, in August.
In 2013, IBM acquired at least 10 companies including SoftLayer, which Big Blue paid $2.1 billion for and which is now the foundation of IBM’s cloud infrastructure. In 2012, IBM acquired at least nine companies including Worklight, which is the foundation of IBM’s MobileFirst strategy. In 2011, IBM acquired eight companies including Platform Computing. And in 2010, IBM acquired a whopping 15 companies, including key pieces of the IBM portfolio such as Netezza, Sterling Commerce, Coremetrics and Cast Iron systems.
In 2014, IBM significantly expanded its cloud initiatives, including investing more than $1.2 billion to expand its global footprint in 40 cloud data centers around the world. The company also invested $1 billion to develop its Bluemix platform as a service to help developers and clients create cloud applications. IBM signed more than $4 billion in multi-year enterprise cloud agreements with Lufthansa, WPP, Thomson Reuters and ABN Amro, as well as strategic agreements with SAP, Microsoft, TenCent, AT&T and Intel.
Last week, Big Blue named one of its top lieutenants, Robert LeBlanc, to the position of senior vice president of cloud. In his new role, LeBlanc is responsible for IBM’s cloud strategy soup to nuts. He has responsibility for IBM’s cloud portfolio of technology and services, including strategy, product design, offering development, marketing, sales, and service.