IBM (IBM, Financial) took a very different position in the cloud industry as it vaulted into a multi-cornered fight with Amazon (AMZN, Financial), Microsoft (MSFT, Financial), Oracle (ORCL, Financial) and Alphabet's Google (GOOG, Financial) (GOOGL, Financial) battling each other. As Amazon and Microsoft relentlessly focused on the public cloud segment, IBM took a different route, preferring the hybrid cloud model instead. This decision may end up paying off in spades over the long term.
According to Synergy Research Group, Amazon and Microsoft are firmly in control of the IaaS-PaaS-SaaS segment, while IBM takes the leading position when it comes to Managed Private cloud.
“In the managed private cloud segment, IBM is the market leader, followed by Amazon, Rackspace and NTT. In aggregate, the big four cloud providers – Amazon, Microsoft, IBM and Google – continue to control well over half of the worldwide market and all continue to grow their market share.” - Synergy Research Group
As Microsoft and Amazon continue racking up above 50% revenue growth rates for their cloud solutions every quarter, IBM is keeping up with the brisk pace, seeing its own as-a-service revenue run rates record year over year growth of 46%, 50% and 65% in the last three quarters. Although we hear of many big-ticket sign-ups from Microsoft, Amazon and Google on a regular basis, we hardly hear about any from IBM. They are there, but highly muted.
IBM’s existing client base is already huge because it serves most of the Fortune 500 companies, large-scale enterprises for whom shifting every last gigabyte of data into third-party infrastructure is a huge no-go zone. IBM has long recognized the fact that large-scale enterprises will never be able to shift completely to a public cloud, especially when there is an alternative hybrid model that can provide the best of both worlds to them.
In a recent survey done by North Bridge Equity Research Partners, nearly 47% of the respondents have said that hybrid will be the predominant strategy, followed by public cloud at 30%. Hybrid cloud, meaning using a combination of public cloud and on-premises systems, remains the most common approach for organizations said Microsoft, one of the participants of the survey.
IBM’s big data and analytics business generated $18 billion in revenues in 2015 and both of these segments have massive potential for growth over the next several decades. As painful as the transition has been for IBM, the company has found the right niche and has stayed the course despite the market giving it full negative marks for all of its efforts.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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