The news that IBM will spin off its managed infrastructure services business into a new company created a pop for its stock, but what does this mean (if anything) for the IT market? In particular, what does it mean for cloud computing? It’s not as simple as it might seem.
The basic coverage theme for the deal, encouraged no doubt by IBM’s own press release, is that this is going to take IBM another step away from “legacy” to “hybrid cloud”. “IBM Slashes Legacy to Focus on Hybrid Cloud” says SDxCentral, and other sites had a similar headline. Click bait? From that, it wouldn’t be unreasonable to think that the deal was spinning out all of IBM’s mainframe computer business, along with related software and services. “IBM trashes everything about itself except Red Hat and the Cloud,” right? Wrong. What IBM is spinning off is its “managed infrastructure services” business, which they say is $19 billion annually. It doesn’t include either software or hardware elements.
In its SEC filing today, IBM said that customer needs for applications and infrastructure services were diverging. It’s pretty clear what applications are, and “infrastructure services” are the collection of managed services described HERE on IBM’s site. It’s a fair hodgepodge of technical and professional services relating to just about everything associated with data centers, but not the cloud. Thus, it could be more accurate to say that IBM is spinning off its managed services except for those involved in hybrid cloud.
If this seems like an almost-political level of spin to you, you’re not alone. I think IBM is doing a smart thing, but they’re wringing the best PR angle out of the move rather than providing the literal truth, which I think is more related to optimizing Red Hat and “NewCo” than anything else. It’s about combined shareholder value.
Before Red Hat, IBM was a creaky old organization with a good self-image, credibility among aging CxOs, and little or no path to serious engagement of new customers. Red Hat gave IBM something modern to push through its admittedly powerful sales engagements, and it also gave IBM one of the best platforms for attracting the attention of new prospects. In short, Red Hat was, and is, IBM’s future, and one of the things it does rather nicely is to link IBM’s cloud business to that future too.
A lot of what builds and goes into the cloud is open-source, and Red Hat is a natural leader in that sector of software. Not only that, a lot of that cloud stuff is still tied back to the data center, creating the “real hybrid cloud” model that’s been there all along and never written about much. There will be very, very, few “cloud enterprises” if we take that to mean 100% cloud, but every enterprise will be a hybrid cloud enterprise. No surprise, then, that IBM has picked that notion up in its PR regarding the spin-out.
But why spin anything out? IBM has Red Hat, after all, and this isn’t some sort of nuclear business atomic-organization theory where one company coming into the IBM atom has to knock another piece out. However, an organization to offer managed infrastructure services really needs to be somewhat technology agnostic to reach its full potential, and if IBM is going whole-hog to Red Hat and associated technology, it hardly wants to present an open-minded vision of the industry on its sales calls. There’s a mission conflict here, one that could hurt the managed infrastructure service business if they stay, as well as the rest of IBM’s business. The new company, “NewCo” in the SEC filings, will be a pure managed infrastructure services company, free now to manage any infrastructure as an impartial professional team, without fear that IBM product/technology bias will scare non-IBM accounts away.
Before we write all IBM’s hybrid cloud singing and dancing off as market hype, though, we have to recognize that while linking this deal to hybrid cloud may be an excursion away from strict facts, it is a fact that IBM is highly committed to hybrid cloud. Why? Because, as I just said, every enterprise will be a hybrid cloud enterprise, and if we define “enterprise” as a ginormous company, IBM has engaged a higher percentage of them than any other IT firm, and has a deeper engagement level with most. Given that the market hype on the cloud has totally distorted reality, IBM is in a position to pick the low apples while all its competitors are still staring into the sun…not to mix metaphors here.
Here’s a basic truth to consider. If the cloud is an abstraction of the thing we call “servers”, then the future of software and computing isn’t based on hardware at all. Even “infrastructure” (in the sense of computing and related platform software) is shaped by the symbiotic relationship the infrastructure has with the cloud, and applications are “cloud application” not mainframe or minicomputer applications, even if they actually run (in part or entirely) on mainframes or minicomputers. The hybrid cloud is the IT of the future, period.
IBM, the old and original IBM, has solid account control with many if not most of the enterprises. It has, with Red Hat, something to sell them, and something from which they can create a respectable hybrid cloud. The core business of IBM-the-new-and-exciting depends on making sure that Red Hat shift works, while at the same time trying to preserve overall shareholder value. Remember, current shareholders will get some NewCo too, and IBM wants that to do well. Inside IBM, the goals of managed infrastructure services and hybrid cloud would likely be cross-purposed often enough to be a problem. Thus, spin it out.
The hybrid cloud lesson here is clear, but another lesson we can draw is also important. The age when enterprise IT and “ordinary” IT differed at the core technology level—mainframes versus minis or even PCs—are over. The enterprise is a hybrid cloud consumer, and hybrid cloud (as I noted earlier) is computing abstracted. One platform to rule them all.