IBM SoftLayer a few pieces short of a finished puzzle

IBM's heavy investment in SoftLayer over the first 12 months got the attention of many IT shops. But some say IBM needs to deliver more before they can commit.

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While IBM has made progress in gaining mindshare for SoftLayer since its acquisition a year ago, some businesses are holding off on widespread deployment until a wider variety of cloud and on-premises applications and tools are ported over.

SoftLayer is important to many of IBM's software and even hardware initiatives for the foreseeable future, a vision many corporate customers say they understand and appreciate. But there are missing pieces that can more tightly tie together IBM's cloud and on-premises environments.

"I know IBM has various projects underway to cloud-enable its applications and tools like BlueMix which looks good to us," said one systems administrator with a large Minnesota-based manufacturing company. "But right now we need some bridges that can take us from a single [on-premises] installation to the cloud for both SaaS [software as a service] and PaaS [platform as a service]."

Over the past 12 months IBM has certainly put its money where its mouth is and backed up the $2 billion it spent to acquire SoftLayer. The company promises to spend $1.2 billion to expand SoftLayer data centers to 40 locations around the world; has spent $1 billion to launch a Watson business unit, with Watson running on top of SoftLayer; will spend $1 billion to establish BlueMix as a cloud-based development PaaS; and launched its IBM Cloud marketplace. It also acquired Cloudant and Silverpop as yet another way to show commitment to SoftLayer.

Some industry observers say the payback on these investments won't arrive until late this year at the earliest and most likely sometime in 2015.

Ginni [Rometty, IBM's CEO] has a tough job ahead trying to maintain the existing revenues streams while trying to push the company over to new ones.
Frank Dzubeckpresident, Network Communication Architects Inc.

"The development period has continued for most of this year, and they haven't completed everything," said Frank Dzubeck, president of Network Communication Architects Inc., consultants in Washington, D.C. "They aren't in the revenue generation stage yet, you won't see anything until the fourth quarter. Once there is motion in the ocean, they'll talk about how it [SoftLayer] is helping the revenues of other IBM products."

Once tighter links are made between SoftLayer and IBM's core offerings, corporate accounts will steadily gravitate to the platform, Dzubeck said.

IBM will have a tough balancing act for some time in trying to build cloud revenues faster than its hardware revenues are falling.

"Ginni [Rometty, IBM's CEO] has a tough job ahead trying to maintain the existing revenues streams while trying to push the company over to new ones," Dzubeck said. "But the big problem in the meantime is getting all the piece parts together [for SoftLayer].

SoftLayer: A 'necessary acquisition'

IBM's aggressive financial investing and marketing has drawn the attention of some larger IT shops and business partners. Earlier this month IBM reported 6,000 organizations have migrated to SoftLayer including Whirlpool Corp. and Daimler subsidiary moovel GmbH. Company executives also boast of commitments from 1,000 business partners to deliver products and services including Avnet Inc., Ingram Micro and Mirantis Inc.

The past year has been "transformational" according to George Karidis, chief strategy officer for IBM SoftLayer. He said his team has attempted to build a cloud platform corporate users would feel comfortable migrating to, as well as one that connected SoftLayer customers with the higher-end enterprise customers of IBM.

"A year ago we had zero overlap between our customer bases, and that has been the biggest transformation for each of us -- bringing those customers together," Karidis said. "I think we have bridged SoftLayer customers with enterprise customers and made IBM a known name with the smaller Internet-centric users."

Some analysts say the SoftLayer acquisition has proved successful because it prevented IBM from being boxed out of a market that is strategically important to its core corporate users, and has given it a product with technical chops that can effectively compete against Amazon, Google and Microsoft.

"SoftLayer was a very good as well as necessary acquisition," said Stuart Williams, vice president of research for Technology Business Research Inc. (TBR), market researcher based in Hampton, New Hampshire. "It gave IBM a team who knew how to put together cloud solutions as well as true hybridization capabilities that can tie in bare metal all the way up to the server creation level, which is really critical."

According to TBR's Cloud Business Quarterly Report, 68% of hybrid cloud customers will increase investment in prebuilt, branded hybrid clouds such as IBM's, throughout 2014. A hybrid cloud will "increasingly become the goal" for enterprises, the report said.

It's elementary, Watson; or is it?

SoftLayer's competitive advantage hinges on IBM's ability to generate interest around its cognitive computing initiative. The poster child for that initiative is the company's Watson computer, which employs artificial intelligence and can answer questions asked in natural language.

Initially, IBM targets Watson for applications across the medical community to broaden its appeal to IT market. But many observers say any boost Watson can offer SoftLayer is likely a few years away, since Watson faces the same challenges as the Power8 -- attracting a variety of application developers.

"What IBM is doing with Watson now is creating a market," Williams said. "They want people to develop solutions for it but they don't know who those people are going to be. Watson is super expensive right now so you just can't roll one into every university or ISV who wants to become a Watson developer right now."

IBM has started to deploy Watson in its SoftLayer-based data centers with Power servers, which Karidis says has appealed to users interested in running compute-intensive applications like data analytics.

"The first step was getting Watson into the data centers," Karidis said. "The next phase is to let users play with it and learn what the best use cases are for them. The importance of having it in SoftLayer is to make it more consumable because it isn't so obvious [to users] where it best fits."

IBM's hardware free fall

IBM also hopes SoftLayer will appeal to prospective users with the upcoming Power8 processor, which offers significantly more processing power than comparable Intel chips, according to IBM. While SoftLayer runs on both x86 and IBM's proprietary Power chips, some corporate users evaluating SoftLayer say they are leaning toward the x86-based systems for reasons of cost.

IBM would be making a mistake to pin its hopes on the Power8, they said, which could well become a niche platform for SoftLayer.

"I have heard their story about the advantages of having one Power [server] over a boatload of Intel systems in terms of hardware and power costs and for some, it is probably the answer," said one long-time buyer of IBM servers. "But what I can see of Intel's plans, they will have systems with at least adequate performance for my needs."

Giving some credibility to the belief the Power series is on its way to being a niche player, IBM's second quarter revenue report last week showed the company's overall hardware sales plummeted another 11%, with the Power series contributing significantly to that drop.

Conversely, IBM reported its cloud delivered as a service is now on a $2.8 billion run rate, about 3% of total revenue. IBM has stated it expects its overall cloud revenues to be $7 billion by the end of 2015.

Other observers noted that IBM's efforts to purposely tune SoftLayer to exploit the Power chips will help it find something more than a niche audience among users running compute intensive applications.

"They are bringing the [Power8] architecture to the marketplace for a lot of people looking for scale in running data intensive workloads," TBR's Williams said. "And with the Open Power consortium, they are looking for people to step up and start producing the chip. It isn't just an IBM product anymore."

While the future for SoftLayer/Power looks promising, Williams cautions that IBM must do a better job of recruiting developers to create compelling applications that exploit the capabilities of Power chip, particularly the Power8.

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