It's strange to see IBM (NYSE:IBM) as being the underdog in any fight, but super-aggressive price-cutting by Amazon.com (NASDAQ:AMZN) has kept that company well ahead in the market for public cloud services.
Now, in an unsurprising move, IBM has publicly announced its intention to fight Amazon with "standards," in this case the open source Open Stack cloud infrastructure.
Arik Hessedahl of AllThingsD.com compares this move to the company's embrace of Linux a decade ago. Gartner Group estimates the public cloud market for 2013 at $131 billion, but most of it comes from marketing services that are deployed there, everything from Facebook (NASDAQ:FB) to Google's (NASDAQ:GOOG) AdSense. Competitors to these companies, which can't afford their own clouds, have long used Amazon.com in order to remain competitive, accepting a mostly self-service environment.
IBM may never get much of that market. What it's aiming for, instead, are the wealth of public clouds, and hybrid clouds combining public and private resources, through which enterprises will transform their operations through the rest of the decade. Amazon's price cuts have kept that market from developing - most enterprises prefer to keep as many resources inside, regardless of expense, and transition new operations to Amazon's public cloud.
OpenStack is an important element in getting them to move. Because it's open source, it's supported by more than IBM. It's supported by Red Hat (NYSE:RHT), by Rackspace (NYSE:RAX), and by a host of enterprise-serving companies that are desperate to find a home in the cloud, like Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), and telecom companies the world over.
By committing to the same software platform used by all these other companies, IBM puts itself in a leadership position, and makes itself the "big dog" in the fight against dependence on Amazon. It will have a lot of frenemies in this - friendly adversaries for contracts - but it has decided it needs their heft in order to make progress.
What investors should probably take away from all this is that there will be a third force in the cloud, and that IBM will lead that third force. If it can help other companies survive through its endorsement of OpenStack, OK. But this is first and foremost an IBM story.
Disclosure: I am long IBM, GOOG, RHT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.