Cloud Wars analyzes the challenge for IBM in 2020 - growth
Cloud Wars analyzes the challenge for IBM in 2020 - growth

Can IBM Crush its Silos and Behave Like Customer-Obsessed Startup?

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(Seventh in a series on the top challenge facing each vendor in the Cloud Wars Top 10.)

 

Two years ago, when IBM reported cloud revenue of $5.5 billion for the 3 months ended Dec. 31, 2017, it became for that quarter the world’s largest cloud-computing vendor—bigger than Microsoft, bigger than Amazon, bigger than everyone.

But one year later, for the comparable Q4 of 2018, IBM’s cloud revenue was $5.6 billion. That’s a measly 2% increase, despite being smack-dab in the middle of arguably the greatest growth market the enterprise-tech business has ever experienced.

Six months later, when IBM reported cloud revenue for Q2 of 2019, the quarterly figure was $4.7 billion—exactly the same number as in the year-earlier Q2 of 2018.

That absolute lack of cloud-revenue growth in a massive and high-growth business led me to write a piece called IBM’s $19-Billion Cloud Business: Where Did the Growth Go?

Three months ago, when IBM posted its Q3 numbers, the inclusion for the first time of Red Hat numbers allowed IBM to post a 14% jump in quarterly cloud revenue (please see IBM Cloud Grows 14% and Drives Sweeping Internal Transformation).

Relative to IBM’s track record, that’s terrific. Relative to the external market, not so much.

As 2020 gets underway, and as IBM prepares to release its Q4 2019 numbers on Jan. 21, it’s perfectly clear that the #1 challenge IBM’s cloud business faces is growth.

On the one hand, you can look at the competitive set IBM’s facing and perhaps understand that growth isn’t so easy to attain in the face of highly innovative and lusty competitors including Microsoft, #1 in the Cloud Wars Top 10; #2 Amazon; #5 Oracle; #6 Google Cloud; and a company that just make its way into the Top 10 very soon: Dell.

But when that’s the prognosis—“it’s not that I’m not great; it’s just that everyone else happens to be much better!”—dark days lie ahead.

I don’t think there are dark days ahead for IBM Cloud—not that I’m expecting dazzling sunshine anytime soon, either. But in spite of the grim no-growth or low-growth track-record cited above, I think IBM has at least three reasons to expect that respectable revenue growth will once again become part of the IBM Cloud story.

Unleashing Red Hat.

The pricey acquisition ($33 billion) seems to have energized the entire cloud business within IBM by providing the impetus for the massive and not-always-flexible IBM organization to begin moving at the speed of the customer. (Please see IBM’s $33-Billion Bet on Red Hat: The Stakes Are Enormous.)

Differentiating Via Hybrid Cloud and Multicloud.

Part of the brand promise of Red Hat is expertise in these red-hot markets of the cloud business. IBM’s put together some compelling new models around cybersecurity that could become blueprints for how IBM can cut across its sprawling and often-contentious business units to focus in on relevant solutions defined by customer needs rather than org-chart priorities. For insights on that, please see Look Who’s Driving Disruptive Innovation in the Cloud: IBM!.

Fusing Industry Expertise with Advanced Technology.

For decades, IBM has worked intimately with the world’s largest corporations across financial services, retail, healthcare, transportation and other industries and amassed unmatched insights into the complex workings of those vertical markets. With its launch late last year of the IBM public cloud for financial-services companies—with Bank of America as an anchor tenant—IBM has begun fully exploiting that industry expertise by fusing it with purpose-built cloud technology.

Few cloud providers can match IBM on either breadth of technology expertise or on industry expertise. So when IBM gets out of its own way and begins coupling those capabilities around customer requirements, very good things are likely to happen. For a detailed look at this approach by IBM, please see IBM Cloud Unleashes its True Competitive Advantage: Tech Plus Industry Expertise.

Final Thought

Red Hat’s infusion of technology, customer-focused outlook and a chance for a fresh start made a good first impression with IBM’s Q3 earnings results. But even the 14% cloud-revenue growth posted for Q3 by IBM lags far behind its competitors and the overall market.

So on January 21, when IBM releases its Q4 and full-year results, we’ll get a good indication of just how ready IBM is to confront its top challenge of 2020: healthy and sustained revenue growth.

Cloud Wars: Outlook 2020

The Top 10’s Biggest Challenges

1. Microsoft — Can it sustain a reputation for reliability for the Azure cloud?
2. Amazon — Can it win vs. Oracle Autonomous DB? AND vs. Microsoft Azure?
3. Salesforce — Can Marc Benioff win the battle to redefine CRM?
4. SAP — Can it sell the marketplace on Experience Management / HXM?
5. Oracle — Larry Ellison is talking a big talk—can Oracle back it up?
6. Google — Can it outflank Amazon through software skills and $$$?
7. IBM — Can it catch up with the rest of the Top 10 in growth rate?
8. Workday — coming soon
9. ServiceNow — coming soon
10. TBD

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