I was amused, and vastly entertained, by Arne Alsin's recent article "IBM: A Disaster In the Making." That's because he has a reasonable premise. Amazon.com (NASDAQ:AMZN) and the public cloud are absolutely killing it right now. Both startups like Facebook (NASDAQ:FB) and large enterprises of all sorts are pushing new workloads to the public cloud, finding uses for big data, and learning the advantages of rapid scaling.
It is much more expensive to build and maintain a private cloud, as IBM (NYSE:IBM) is telling its customers, than to buy public cloud resources. But few companies of any size are willing to hand their futures to a public cloud provider -- even Amazon. Netflix (NASDAQ:NFLX) has worked very hard on its Open Connect system in order to reduce its dependence on Amazon, which suffered at least four major outages last year.
Existing workloads are being held in stasis while enterprises seek growth through the cloud, but that's a stasis that just won't hold. That's because cloud economics are too compelling. Unfortunately it's going to cost a ton of money to rewrite enterprise applications to work on cloud technology. It's not something you can expense -- it's something that must be planned for and paid for over time.
That's where IBM comes in. The company has actually been developing private clouds and hybrid clouds for years. It has tied its mainframe technology to cloud, and if you don't think mainframes have a future, you're obviously not a banker. With OpenStack, the company has aligned itself with a host of traditional IT providers.
It will take time to develop tools around OpenStack so that it becomes a platform. It will take more time to rewrite existing applications to run on that platform. But it's time well spent, because the savings from cloud will more than make up for the time and money now being spent.
IBM is in the best position to win on private cloud because it's basically in the business of trust. Its business model for the last two decades has been you bring your business to us, and we will handle computing's complexity for you. The client-server world was a wild scramble for IBM, because companies like Oracle (NYSE:ORCL) had compelling, database-driven solutions that were directly competitive.
But I don't know who is going to have IBM's scale or knowledge base when it comes to OpenStack, once it's fully developed. That doesn't mean IBM is going to run away from the pack. But I think it will be able to lead much of the Fortune 500 it's now contracted with into true cloud savings, in ways its big IT competitors can't match.
The next few quarters are a great opportunity for you to get into this new IBM, or to add to your position. They will be difficult for the company. But what's on the other side is a major technology transition, and for the first time since the PC revolution of the 1980s IBM is in the driver's seat for it.
Disclosure: I am long IBM. 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.