IBM and VMware both reported their numbers and the results look like a win for the cloud. The question remains whether a win for the cloud translates into a win for vendors and for IT overall, though. Neither of the two companies really made a compelling case for a bright future, and when you combine this with the Softbank proposal to buy ARM, you have a cloudy picture of the future.
IBM beat expectations, but the expectations were far from lofty. The company continues to contract quarter-over-quarter, for the very logical reason that if you’re an IT giant who’s bet on a technology whose benefit to the user is lower IT costs, you’re facing lower revenue. VMware can buck this trend because they’re not a server incumbent and clouds and virtualization reduce server spending. Broad-based players can’t.
Perhaps the big news from IBM was that it appears that, adjusting for M&A, software numbers are declining and business services are soft. Let’s see here; you divest yourself of hardware and focus on technology that stresses a shift of enterprises from self-deployed to public hosting, and you’re also shrinking in software and services. What else is there in IT?
IBM has some solid assets. They have a good analytics portfolio, exceptional account control in large accounts, a number of emerging technology opportunities like IoT and Watson, and strong R&D with things like quantum computing. Its challenge is to somehow exploit these assets better, and that’s where IBM still has problems.
The first problem is marketing. Sales account control is not a growth strategy because there’s no significant growth in the number of huge enterprises that can justify on-site teams. IBM needs to be down-market and getting there is a matter of positioning and marketing. They used to be so good at marketing that almost everything IBM did or said became industry mainstream. Not anymore.
The second problem is strategic cohesion. OK, perhaps quantum computing will usher in a new age of computing, but “computing” means “computers”, right? Hasn’t IBM been exiting the hardware business? Software today means open-source, and IBM has a lot of that, but you don’t sell free software. Watson and IoT are emerging opportunities, but they could take years to emerge and it’s obvious that IBM needs to do a better job of promoting them.
The third problem is the lack of a clear productivity-benefit dimension to IBM’s story. The cloud isn’t by nature accretive to IT spending, it’s the opposite. To get a net gain from the cloud you have to associate the cloud with a productivity benefit that your buyers don’t realize now, without it. IBM’s story in this area is muddled when it could be strong.
How about VMware and its implications? First, clearly, VMware as a virtualization-and-cloud player that doesn’t have a stake in the product areas that the cloud consolidates, would see the cloud as a net gain. It can focus on the cost driver and exploit it, which is a considerably easier task from a sales and marketing perspective. How long does it take to say “This will be 30% cheaper” versus explaining the ins and outs of productivity enhancement through some new technology?
VMware is also reaping the benefits of the combination of cloud publicity and OpenStack issues. There is no question in my mind, nor in the minds of most cloud types I’ve talked with, that OpenStack is where the cloud is going. The problem is that like all open-source software, OpenStack is a bit disorderly compared to commercial products. VMware has a clear market opportunity in supporting the evolution of limited-scope virtualization to virtual-machine-agile hosting anywhere and everywhere. They can develop feature schedules and marketing plans to support their goals, where OpenStack as a community project is harder to drive in a given direction. VMware can also be confident they’ll reap the benefit of their own education efforts with their stuff, which can’t be said for vendors who rely on OpenStack because it is open-sourced. VMware’s Integrated OpenStack is in fact at least one of two leaders in the OpenStack space, so VMware has little to fear from OpenStack success.
VMware also seems to be gaining some ground over open-source in the container space. Docker gets all the container PR, but enterprises tell me that Docker adoption isn’t easy and that securing a supported Docker package is costly enough that VMware’s container solution isn’t outlandish. Not only that, most enterprises interested in virtual hosting have already implemented VMware.
The VMware NSX (formerly Nicira) SDN overlay technology, which VMware is rolling into a broad software-defined-data-center (SDDC) positioning and also exploiting for the cloud. It announced a management platform specifically for NSX, and that makes it far easier for enterprises to adopt in the data center. There’s plenty of run room for expansion of NSX functionality and plenty of room for market growth.
Finally, VMware’s alliance with IBM is helping VMware exploit IBM’s commitment to the cloud perhaps better than IBM can. IBM’s SoftLayer cloud is powered by VMware and IBM’s support is a highly merchandisable reference. How this will fare when/if Dell picks up VMware is another matter.
Perhaps the big question for VMware, in fact. Dell, and its rival HPE, seem to be taking the opposite tack to IBM, focusing on hardware and platform software rather than divesting hardware. That means that there could be no long-term conflict with SoftLayer even if the Dell buy happens. However, it’s not clear whether getting into, or getting rid of, hardware is the best approach, and it may well be that neither extreme is viable. And VMware’s benefit in the cloud-and-virtualization space is transitory. First, being the supplier for what enterprise buyers are evolving from is useful only until they’re done evolving. Second, all OpenStack sources will eventually converge on the same baseline product with the same stability. Can Dell strategize an evolution, and exploit things like NSX?
The cloud isn’t hurting IT, it’s simply an instrument of applying the hurt factor, which is the sense that the only thing good about future products and technologies is their ability to control costs. Commodity servers and open-source software, hosted virtual machines and server consolidation—you get the picture. This is where the Softbank deal for ARM comes in. ARM is a leader in embedded systems, which today means largely mobile devices and smart home devices. Any commoditization trend in hardware tends to favor chips, which are an irreplaceable element. We already use more compute power out of businesses than in them, and that trend is likely to continue. Softbank is betting on it, in fact.
Even the cloud will be impacted by the current cost-driven vision of change. My model has said consistently that a cost-based substitution of hosted resources for data center resources would impact no more than 24% of IT spending. A productivity-driven vision, if one could be promoted, could make public cloud spending half of total IT spending, and transform over half the total data centers to private clouds. That’s the outcome that IBM should be promoting, of course.
The point here is that we’re in a tech-industry-wide transformation that’s driven by a loss of new and valuable things. All the players, whether they’re in IT or networking, are struggling to realign their businesses to the evolving conditions. Some like VMware are currently favored, others like ARM are favored more in the long term, and some like IBM seem to be trying to find favor. Eventually, everyone will have to change if current trends continue, and it’s hard to see what will reverse the cost focus any time soon.