The onrushing quarterly earnings reports cycle continues to generate insights into market and competitive conditions. Last week, Amazon blew away Wall Street expectations, Microsoft guided higher on its cloud revenues, and IBM ditched their CEO. All these developments have their own implications, but there are also some broader market trends being exposed, and I want to focus on them.
Strategically speaking, computing is increasingly all about the cloud. Even though only one of every four applications run in the data center will ever fully migrate to the cloud, cloud-front-end technology is revolutionizing application design. The “hybrid cloud” that’s becoming a media phenomenon is really a new model of computing, one that adds logic in the cloud and tweaks what’s in the data center. Amazon and Microsoft vie for the cloud side of the hybrid, and while IBM is likely to leverage its data center influence, it’s also looking at the cloud in both direct and indirect terms.
I think it’s clear that IBM finally realized that its traditional approach to IT was fatally flawed in the current era. The company’s decision to exit hardware except mainframes, and concentrate on development platforms and large-scale IT tools, made it a slave to a Fortune-500-type market, which obviously is very limited in growth. Furthermore, as that buyer focused more on hybrid cloud, IBM had no real offering to facilitate the development of a new cloud model.
The head of IBM’s cloud computing unit, Arvind Krisha, will become IBM’s new CEO, and James Whitehurst, Red Hat’s CEO, will become IBM President. Since Krisha was said to be the key inside-IBM player in the Red Hat acquisition decision, this set of changes establishes a Red Hat culture in parallel with the existing IBM culture. Red Hat, as I’ve noted in past blogs, brings populism back to IBM’s influence-building approach. There are 500 Fortune-500 companies but there’s no limit to how many companies might want Red Hat. Total Addressable Market (TAM) rules.
So does insight, though, and that’s where I think the CEO change could matter the most. IBM was not only not building TAM; it was losing it as their base bled off to cloud-knowledgeable competitors. Just having an IBM cloud offering wasn’t enough. Red Hat, as one of a very small number of highly credible premises-side hybrid cloud-builders, is surely a great start. The fact that Krisha is considered a technologist rather than a business type could be positive too, because what IBM needs now is a new technology vision. Given Krisha’s role in the Red Hat deal, it’s not unrealistic to hope he could drive such a vision.
The timing could be good here too, because there are definitely signs that the hybrid cloud wars between Amazon and Microsoft are heating up. There are also signs that Microsoft is fighting it earnestly and Amazon is, well, you can’t learn much about Amazon from its earnings calls. Microsoft mentions “hybrid” over a dozen times in its earnings call, and Amazon never mentions it at all. Microsoft has announced Azure Arc, their model for describing an abstract hosting layer on which Azure apps can run, and that envelopes the data center, multi-cloud, and edge computing. Amazon has no such emphasis on hybridization, but Google’s Anthos does much the same thing, and Google is IBM’s rival for the number three slot in the cloud space.
The weakness of both Azure Arc and Anthos is that neither of them is really rooted in the data center. Anthos is really mostly cloud-centric, and of course Google isn’t a data center player. Arc is positioned as a kind of universal umbrella, justified by the rain and not what’s under it. IBM has very strong strategic influence in the data center, and so they could in theory bring an Arc/Anthos-like story to the constituency that has the strongest control over IT spending.
Whether this would work depends on two things. First, are Microsoft and Google (and VMware and other smaller players) right that enterprises are now focusing on hybrid cloud as a specific goal and not an accidental byproduct of the public cloud’s limits as the hosting point for enterprise applications? Second, can IBM turn Red Hat and its “Cloud Paks” into a strong hybrid cloud model?
It’s hard to say whether hybrid cloud is really an opportunity just from comparing earnings calls, given that the biggest public cloud player (Amazon) has the most abbreviated and downright dull (in a technical sense) of all earnings calls. We can only guess what they might be thinking.
One guess is that Amazon sees a hard boundary between the cloud and the data center in a hybrid cloud model. I’ve said from the start that public cloud service would penetrate the enterprise by creating a front-end extension of traditional apps, one aimed at mobile and web empowerment. If that’s true, then there’s relatively little pressure for cross-migration between cloud and data center, and so it’s easy to treat the two pieces as nothing more than two applications connected by a message queue. If that’s the true situation, then hybrid architectures aren’t that important…at least for now. Why admit to an opponent’s strategy when you don’t need to?
Another guess is that Amazon is pushing what I’ll call the “cloud-as-a-community” view. It isn’t symbiosis between the front- and back-end pieces of your application that are important, it’s the symbiosis between your front-end pieces and the front-end pieces of other business’ applications. Amazon, having the largest number of community members, has the most value in a community-centric vision. They do sort-of-make this point in their earnings call, where Amazon CFO Brian Olsavsky says “We also think that there’s a real network effect when you use AWS with the millions of active customers and tens of thousands of global partners.” Sure sounds like a community vision to me.
Then there’s the guess that what Amazon is thinking is that advancing AWS’ service scope is the real competitive goal. They’re not trying to transform IT, just get a huge pile of cash selling AWS, which means it’s other clouds that are their competition. Too much talk about “hybrid” leads to “multi”, which means “share the wealth”, which Amazon doesn’t want to do. If Amazon adds services to AWS that make it more powerful, easier to adopt, and easier to develop for, then they’ve won against competitive cloud providers. Next quarter, and following quarters, are then more likely to be blow-outs.
My view is that, eventually, the hybrid cloud will produce a new IT/application model. There will not then be a hard boundary between public cloud(s) and data center, and some real hybrid strategy, architecture, and toolkit will be essential. It may well be that Amazon sees that too, but doesn’t want to contaminate their current success by anticipating it in positioning, validating competitors’ strategies, and slowing the sales cycle. That means that IBM, to win in hybrid positioning, has to make hybrid positioning an immediate CIO priority.
Which raises that second point on which IBM’s success with hybrid cloud will depend. Red Hat, not being a public cloud aspirant, is agnostic with respect to what public cloud you’re hybridizing with. Even IBM, in its Kabanero Kubernetes federation story, took an open-cloud view. Will Krishna continue to take that view, given his roots in IBM’s cloud unit? If IBM sees the hybrid cloud as an opportunity to push its own cloud, even within its mainframe base, they could contaminate their opportunity. There are too many hybrid cloud models without public cloud specificity emerging. Absent some strong promotion, they’ll have time to mature before the market will really demand them, so IBM cloud lose its strategic lead.
This gives us a signpost to look for, not only from IBM but from other players in the hybrid cloud space. The hybrid model is not an immediate requirement; Amazon isn’t dumb enough to ignore that kind of threat. It’s a late 2021 or early 2022 thing unless somebody gets aggressive and moves up the timetable with savvy positioning. Just because CIOs might not need a hybrid application model doesn’t mean they couldn’t be made to want one.
And if the good of the industry means anything, it would be a positive if they did.