IBM Cloud Wins Aren't Pure Cloud Revenue

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Joe Panettieri
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Summary

  • WPP deal: More IT services than cloud.
  • Thomson Reuters deal: Mostly IT services.
  • ABN AMRO deal: Mainframe, IT infrastructure mixed in.
  • Bottom line: Actual cloud revenues are unclear, but that may be the point.

Check the headlines in recent days, and it looks like IBM (NYSE:IBM) has been winning big cloud computing deals left and right, involving customers such as ABN AMRO, Thomson Reuters and WPP.

The media headlines seemingly suggest IBM is finally pushing aside Amazon.com (AMZN) Web Services and Microsoft (MSFT) Azure, while winning cloud business with enterprise CIOs worldwide. The wins certainly come at a critical time, considering IBM revenues have been flat or dropping for 10 consecutive quarters.

But take a closer look at each "cloud" victory and you'll discover a somewhat different reality than the media suggests: The deals also involve a healthy dose of IBM's global IT services, infrastructure management and even mainframe revenues. So while I'm skeptical of IBM's cloud victory claims, there's still potential reason to celebrate here.

The reason: IBM simply can't compete head-on against Amazon's endless cloud price cuts. Commodity IaaS (infrastructure as a service) is a no-win game for IBM's overall higher-cost, higher-margin business model. To beat Amazon, IBM must surround and conquer. That means a healthy does of hybrid cloud, IT services and some hardware sales mixed in.

Instead of looking at the cloud "headlines," let's examine what each IBM customer win actually involved.

ABN AMRO

From the IBM press release announcing the deal:

IBM and ABN AMRO have signed a 10-year, multibillion-dollar services agreement to manage the IT infrastructure that supports the bank's operations globally. The agreement includes the implementation of a private IBM cloud together with further standardization and simplification of the existing IT landscape, from mobile computing to mainframe infrastructure.

My spin: Only a piece of the 10-year deal really involves cloud - things like recurring SaaS revenues. Instead, most of it likely involves managed IT services and good old mainframe optimization and maintenance.

Thomson Reuters

According to IBM, it signed "a new multi-year services agreement with Thomson Reuters to provide IT services to employees globally."

My spin: Sounds like a classic IBM Global IT Services win to me.

WPP

IBM states that it signed "a seven-year, $1.25 billion services contract for IBM to transform and manage WPP's global technology platform" using hybrid cloud offerings.

My spin: Hybrid cloud is jargon for a mix of true cloud and on-premises hardware gear.

Roll all those victories up and it's clear IBM wants cloud in every news headline because cloud sells on Wall Street and quiets nervous investors. If these really were pure cloud deals, we'd hear a lot more about IBM's SoftLayer business being involved.

Still, it's tough to criticize IBM during three separate moments of victory. Yes, Big Blue is winning billions of dollars worth of new business. Just don't try to convince me it's all cloud-related. On the contrary, there's plenty of on-premises gear and IT consulting mixed in. And that's a healthy reality as IBM tries to compete against Amazon and Microsoft Azure without having to match rivals on commodity IaaS pricing each and every day.

This article was written by

Joe Panettieri profile picture
77 Followers
Joe Panettieri is a tech media entrepreneur and angel investor. His primary focus is co-founder, executive VP and content czar at After Nines Inc. and ChannelE2E (http://www.ChannelE2E.com), which guides IT service providers from Entrepreneur to Exit (E2E). Panettieri also co-hosts Tech News Today (a leading video podcast) each Tuesday. Panettieri has co-founded, built and sold multiple IT media brands -- including MSPmentor, Talkin' Cloud and The VAR Guy. He previously held senior- and executive-level posts at CMP Media, InformationWeek, Penton and Ziff Davis Media. He has hosted IT conferences and CIO events worldwide, interviewing technology leaders like John Chambers, Michael Dell, Bill Gates, Mark Hurd, Eric Schmidt and Meg Whitman along the way.
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Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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