When International Business Machines Corp. (NYSE:IBM) announced that it was buying Softlayer, for a price reported at almost $2 billion for a privately-held company with annual revenue of $335 million, most of the talk focused on what this might mean for Amazon.com or the Fortune 500.
What it actually means is that IBM is becoming more agnostic in terms of cloud technology.
What Softlayer brings to IBM
Softlayer’s cloud servers are based on software it calls CloudLayer, which in turn runs off Xen hypervisors, not the KVM system IBM itself favors. The operating system is also pure Xen, Citrix XenServer.
Until now, International Business Machines Corp. (NYSE:IBM) has seemed to have focused on supporting only OpenStack as its cloud infrastructure, endorsing it last year, and to emphasize purified cloud technologies like virtual servers.
But CloudLayer also lets companies create “dedicated” servers. Sounds like a contradiction, and to an extent it is. But by dedicating a machine to your own services, or a collection of machines, companies make certain that their data won’t be mixed up with data from other companies. In many industries, from finance to medicine, this matters a lot.
IBM targets the picky, picky picky
All this is, on the surface, wasteful, but IBM is not going after Amazon’s customer base with its cloud offerings. Instead, it’s going after large corporations and government organizations for whom rules over where data lives, and how it’s transformed, are very important. These organizations will pay a premium to make sure that data security is maintained at all times, that their corporate “precious bodily fluids” don’t mix with anyone else’s stuff.
When large organizations look at cloud, they compare the costs of what they’re currently doing with what they could be doing using cloud, assuming the benefits of the old system are retained. It’s a major system integration task. It’s a lot more expensive than going to a public cloud, but if you can convince people that in the long run it’s cheaper than continuing to run client-server – and it is – then they’ll write the check.
This is what International Business Machines Corp. (NYSE:IBM) is trying to do. Convince big customers that, whatever they want from cloud, IBM will make sure it’s done. Want dedicated servers? Want a non-standard cloud infrastructure? Need to maintain your existing workflows in the meantime, re-building the freeway while traffic continues passing? You got it.
This is also expensive for the service provider. And this is another key advantage for IBM, because it has the necessary staff resources, and needs to pay those people what they’re worth.
It’s a long game International Business Machines Corp. (NYSE:IBM) is playing. Positive results won’t be achieved until the mass migration of these large organizations toward cloud begins in earnest. But IBM can now begin that sales task. Again, that’s something it does well.
Any cloud strategy has to play to your own strengths. A scaled staff of people, an unparalleled ability to handle complexity, and to hold the hands of skittish customers, these are all up International Business Machines Corp. (NYSE:IBM)’s street.
The Foolish are patient
Expect benefits from this to show up slowly, however. This won’t add to earnings until the fourth quarter at least. Which means you can expect to see the stock under pressure over the next several months.
That’s when you buy.
Dana Blankenhorn owns shares of International Business Machines (NYSE:IBM).. The Motley Fool owns shares of International Business Machines.
The article IBM Becomes More Cloud-Agnostic With Softlayer Buy originally appeared on Fool.com.
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