IBM to Spend $1.2 Billion to Increase the Size of Its Cloud
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Big Blue is committing $1.2 billion to expand the reach of its cloud computing infrastructure. The company said in an announcement that it plans to build 15 new data centers on five continents, adding to the 13 it already has. Eventually, it said, it will have 40 data centers in 15 countries.
The move comes in the wake of last year’s acquisition by IBM of SoftLayer, a Texas-based cloud-computing service provider. IBM paid about $2 billion for SoftLayer.
The new data centers for IBM will be in China; Hong Kong; Washington, D.C.; London; Japan; India; Canada; Mexico City; and Dallas. It also said it has plans on the board to expand into the Middle East and Africa next year.
That goal here is to compete with Amazon Web Services, regarded as the big dog of the cloud services business and said to have five times more computing capacity for hire than anyone else in the cloud business. And according Gartner analysts, AWS brings in about $3 billion a year, or about five percent of revenue.
AWS is certainly well-distributed around the world. It has eight regions — three in the U.S. — and one each in Ireland, Japan, Australia and Brazil. There’s also a center in Beijing, which is in what Amazon calls a “limited preview” through the early part of this year. And there’s also the GovCloud, which is aimed at federal government clients. There are also smaller “edge” locations in 36 more locations around the world that help fill in the gaps between the main regions.
Amazon says it has “thousands” of cloud clients; IBM is more specific, saying it has 2,400.
One thing Amazon doesn’t have that IBM does is Watson, the game-show winning supercomputer that has recently been put to work in various parts of the health care and customer service industries. Last year IBM opened up the Watson development environment in order to encourage more people to use it. Watson instances will be able to run in IBM SoftLayer data centers around the world.
It needs all the help it can get. The Watson business has turned out to be kind of a dud for IBM, at least so far. A report by The Wall Street Journal, citing internal conference call transcripts, found that Watson sales were “in a ditch” in the words of one executive.
Meanwhile, IBM has some cloud accounting trouble that it hasn’t yet spelled out. In July, the company disclosed in a regulatory filing that the U.S. Securities and Exchange Commission was investigating unspecified aspects of how it reports cloud-services revenue.
Whatever the alleged problem may be — neither IBM nor the SEC has said — the cloud computing business remains a growth area. IBM says it sees an addressable market worth $200 billion within six years. Gartner pegged the market at $131 billion last year.
But that number covers all the various segments, including software-as-a-service offerings like Salesforce.com and Workday, and platform-as-a-service outfits like Heroku and Engine Yard.
Where AWS and IBM Softlayer are playing right now, according to the Gartner tally, is in the infrastructure-as-a-service portion of the market. That was worth about $9 billion last year, just to keep it in perspective.