How to Profit from International Business Machines Corp. (IBM)’s Cloud Announcement

International Business Machines Corp. (NYSE:IBM)‘s decision to commit its resources to OpenStack is a very big deal in the history of the cloud.

Up to this point, the cloud market has been dominated by proprietary systems, mostly that of Amazon.com, Inc. (NASDAQ:AMZN), whose aggressive price-cutting has made its API a de-facto industry standard.

Now, in an unsurprising move, IBM has publicly announced its intention to fight Amazon with “standards,” in this case the open source OpenStack cloud infrastructure.

The Big Winners

I think this is bullish for International Business Machines Corp. (NYSE:IBM), but that’s obvious. Who are the other big winners from this announcement?

I call this an unsurprising move because Red Hat, Inc. (NYSE:RHT) decided nearly a year ago to embrace OpenStack in its own product line, building its own OpenShift platform on top of the cloud infrastructure first pioneered by NASA, then embraced by Rackspace Hosting, Inc. (NYSE:RAX), and now run by an independent foundation.

Red Hat and IBM have long been joined at the hip, and IBM executives are regular speakers at Red Hat’s annual summit meetings in Boston. Arik Hessedahl of AllThingsD.com compares IBM’s OpenStack move to its embrace of Linux a decade ago, and Red Hat was a key beneficiary of that, since it’s Red Hat Enterprise Linux that has become most closely identified with International Business Machines Corp. (NYSE:IBM)’s own Linux efforts.

The OpenShift platform is designed to bring all the benefits of Red Hat Enterprise Linux, and its JBOSS middleware, to the cloud. It’s enabling technology for Red Hat, and IBM’s embrace of OpenStack could mean that OpenShift gets a huge boost.

But I think this goes beyond that. At the end of the day, a cloud infrastructure, and cloud platform, are merely steps on the way to building services in the cloud. SaaS is what pays for everything else, and it’s SaaS where IBM expects to make its money here.

Another big winner here could well be Rackspace, which has been getting hit very hard by Amazon’s aggressive price-cutting. Of all those ISPs offering cloud services based on OpenStack today, Rackspace has more OpenStack experts, more programmers who are authorized to commit new code to the project, than anyone. No company, short of IBM itself, probably has more in-house expertise in OpenStack deployments than Rackspace.

So International Business Machines Corp. (NYSE:IBM)’s decision is a real lifeline to Rackspace. It means companies that are delaying their decisions on hybrid or private clouds in favor of the dirt cheap prices of Amazon.com (as well as Google Inc (NASDAQ:GOOG) are now more likely to throw a little business the way of Rackspace, if for no other reason than to access expertise they will want to take advantage of later.

Who Loses?