CLOUD WARS — IBM’s blockbuster acquisition of Red Hat for $33.4 billion to create a hybrid-cloud powerhouse signals a massive shift in the cloud-computing industry away from vendor-driven technology-first approaches and toward a customer-centric model that offers C-level execs strategic and high-value digital-business capabilities.
Just as Henry Ford is rumored to have said more than 100 years ago that car-buyers can have any color they want as long as it’s black, too many cloud providers in today’s world have boxed corporate customers into closed and proprietary cloud systems that also are unable to offer simple connections into traditional on-premises technology.
That’s because most first-generation cloud services were quite intentionally set up in isolation from not only those on-premises systems but also from other cloud services, partly in a land-grab effort and partly because the nature of first-gen solutions are by nature narrow, specific and fragmented.
But at some point, all those Balkanized clouds, and all that “old” on-premises stuff (that still runs most of the world’s business processes and manages most of its data), and all the competing new cloud technologies, and all that fragmentation exposed an underlying disaster for corporate customers: too much complexity, too much cost, too many limited views of their operations, and too much time wasted in trying to make all that incompatible stuff work together.
But the hybrid cloud approach pushed very aggressively by IBM and Red Hat as part of their announcement has the promise to take business leaders beyond all that waste and frustration because, as its very name implies, the hybrid cloud is specifically intended to operate across diverse platforms by deploying open solutions and technologies.
Cloud-market leader Microsoft has to date been the most-bullish and visible proponent of the hybrid cloud. More than a year ago, here’s how CEO Satya Nadella described the unified-architecture approach that underscores the hybrid cloud:
“We don’t think of our servers as distinct from our cloud,” Nadella said on an earnings call earlier this year. “In other words, this intelligent cloud and the intelligent edge is the architectural pattern for which we are building. Whether it’s SQL Server 2017 or it’s Windows Server, or the container service, everything that we do assumes the distributed computing will actually remain distributed. “And it turns out that it’s helpful to think about it that way, both for customers who are rationalizing their portfolios of apps that the lift-shift modernizes to what they run in their data centers, or in our data centers, but also forward-looking new workloads.”
And I believe that business leaders are going to become extremely bullish on this hybrid concept because it very directly addresses their primary objectives and pain points-what’s the best way to move our applications and workloads to the cloud rapidly, cost-effectively and securely?-without asking them to spend a few more years and many millions more dollars untangling the series of Gordian Knots confounding their efforts to move rapidly into the world of digital business.
IBM CEO Ginni Rometty went so far as to bill the hybrid cloud “an emerging $1 trillion market,” noting that on average businesses are running 1,000 applications and that disconnected clouds-in some cases as many as 16-have sprung up within companies whose objectives are simplicity and speed, not endless complexity and fragmentation.
“We have 90,000 cloud architects to accelerate this movement,” Rometty said in a conference call with financial analysts that also featured Red Hat CEO Jim Whitehurst.
While such calls with financial analysts are often dry and tightly scripted, Rometty and Whitehurst were almost effusive in emphasizing the various benefits of the deal:
- It’s not about “cost synergy, but about growth synergy”;
- There’s no overlap in product lines;
- Red Hat will retain the Switzerland-like posture of objective independence for its many partners and the 8,000,000 developers that Rometty said use the Red Hat Linux platform;
- IBM’s massive Services business will drive both scale and industry expertise for Red Hat’s hybrid-cloud, container and related technologies; and
- “There is something in here for every part of IBM,” said Rometty in framing out the widespread impact Red Hat will have on IBM.
One large customer of both IBM and Red Hat was also quite bullish on the deal.
“RBC views technology as a strategic enable in creating great customer experiences so we’ve been keen investors in technology and have been aggressively pursuing our cloud strategy,” said Royal Bank of Canada CIO and group head of technology and operations Bruce Ross.
“We have long relationships with both IBM and Red Hat and both relationships have been vital for us, and we see this deal as very good for the cloud marketplace because it allows IBM to deliver more effectively on the hybrid cloud.”
Ross emphasized RBC’s need for speed in getting advanced digital capabilities to market more rapidly-RBC does about 10 upgrades per year to its mobile app, called NOMI-and said Red Hat would help IBM become “more of a player in DevOps” and compete more aggressively with the big guys like Amazon and [Microsoft] Azure and Google.
“That’s really important for our bank because it creates more choices for us,” Ross said. “And for IBM and Red Hat, both companies get a lot out of it.”
For IBM, its unmatched legacy and expertise in enterprise software of every kind has been a powerful force in building its $19-billion cloud business, $7.5 billion of which comes from what I call its “cloud conversion” business that helps big global companies convert legacy systems to private clouds that can operate elegantly with public clouds as well as older technology.
And as IBM and Red Hat continue to aggressively make the case for the hybrid cloud-and perhaps flesh out Rometty’s eye-popping claim that it represents a $1-trillion market-Microsoft will continue to add its full support to the effort to make hybrid cloud the dominant and highest-value model for businesses to pursue as the core of their digital transformations.
Microsoft opened the year with an acquisition to expand its capabilities in the hybrid cloud, a sector that I wrote had become “the centerpiece of Microsoft’s strategy” in an article called Microsoft Intensifies Focus On White-Hot Hybrid Cloud Market With First Acquisition Of 2018.
Six months later, in Microsoft’s earnings call with financial analysts in late July, CEO Nadella cited the hybrid cloud as absolutely indispensable within not only the company’s “real competitive advantage” but also its “best-kept secret,” both of which I described in this excerpt from my Forbes.com article headlined Why Amazon Can’t Match Microsoft In The Cloud: 10 Insights From Satya Nadella:
“The vision we have always had is that distributed computing in some sense will remain distributed. So, we don’t split this into, over there is an edge computing, and over here is cloud computing.” And that concept of a single unified approach and architecture is central to everything Microsoft is doing in the cloud, Nadella said: “So if you think about what our real competitive advantage and differentiation is, we have one programming model, one identity model, security, management, etc, so that modern developers as well as IT can use the compute available from Azure Sphere to Azure. And the reality is these modern workloads in fact use it all.”
He later added this about the company’s “best-kept secret,” a service called Azure Hybrid Benefit, a licensing model that allows customers to shift dollars committed to on-premises versions of Windows Server Standard and Datacenter Editions to the Azure cloud. From that article: Saying he doesn’t think Microsoft has done a good job at promoting this initiative, Nadella put it this way: “I actually think that these Hybrid use benefits are being sort of our best-kept secrets. So, I’m actually hoping that going into this next fiscal year, we do a much better job… because of the Hybrid use benefits across the entire workload are pretty phenomenal.” Nadella went on to say the opportunity has not “really played out” and he expects significant growth to occur around this program in the future.
Microsoft’s hybrid strategy is also explored in detail in another Forbes.com article called 10 Powerful Examples Of Microsoft CEO Satya Nadella’s Transformative Vision.
So to IBM and Red Hat, kudos for what looks like an exceptional deal that’s predicated on delivering huge new value for customers, a dynamic that is likely to translate into significant growth for the combined companies.
And with Microsoft also driving home the value of the hybrid-cloud model, I think we can all be confident in the coming demise of the old vendor-centered model of endless streams of disparate and hard-to-integrate cloud services and technologies, and the rise of new customer-centric cloud solutions built around open technologies.
If IBM and Red Hat can maintain their focus on making this a huge win for customers, they stand a very good chance of generating an outsized victory for themselves as well.
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