IBM & Cloud – Danger Peppered with Opportunity

Cloud computing comes as a boon and a bane for the industry stalwart International Business Machines. The bane aspect of cloud computing reared its head when recently IBM announced their earnings which suffered a shortfall and failed to come up to the expectation of industry analysts.

The boon aspect as far as IBM is concerned is in form of providing various businesses the infrastructure needed to sustain cloud computing environment. Provision of hardware and software that assist governments, enterprises of various magnitude, web developers and hosting providers to offer their ware over the internet is a profitable venture. In September, IBM realized the potential of cloud computing and revamped their strategy to sell cloud solutions to mid size businesses. This effort was undertaken to bring IBM’s portfolio on par with already established market leaders like Amazon.com and Salesforce.com. For the third quarter, IBM has claimed to have reaped tremendous growth via cloud business, although the higher ups of the organization were tight lipped about divulging the specifics of their monetary gains.

The threat that cloud computing poses is the obliteration of the need for businesses to acquire traditional software and associated consulting services that allow them to regulate and control areas like finance and human resources. Instead of opting to purchase these cost heavy programs and hiring the services of IBM specialists to incorporate and install them, many customers are selecting the cheaper alternative provided by cloud. Premier purveyors of cloud computing like Salesforce.com, NetSuite and new comers like Workday provide the option of renting these software programs, which is considerably cheap and cost effective.

IBM’s Chief financial officer Mark Loughridge via a conference call informed that his company has experienced a reduction of 6% in the revenue. This shortfall has hit the global business services, and according to Mark, it’s because of “declines in some of the more traditional package application projects.” IBM’s software portfolio sales also reported a loss of 1% as there was a substantial reduction in demand for its large infrastructure programs that support traditional applications. The collective effect of these shortfalls caused IBM shares to go down by 5% on Thursday and had a trickledown effect on the market.

Cloud computing has posed a real threat to big technology companies like IBM, Microsoft and Hewlett Packard; they all reported decline in their yearly revenues. The need of the hour for these software giants, is to incorporate cloud computing in their business hierarchy but at the same time find a way to preserve their monetary gains which they earn by selling traditional software. The viable challenge for IBM and its sales team is that they can’t engage in full fledged sales of cloud computing solutions because of the limited deal size associated with them.

“They need to shift their business without it taking a big bite out of their traditional revenue stream,” said Gartner analyst Ed Anderson. “For them it is a revenue transition. The sales number is much, much smaller on cloud. That is the dilemma they face. For all of those big vendors there will be a big revenue hit for them.”