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The painful history of IBM Cloud

a bee flies away from an eye and the letter M

Welcome to Protocol | Enterprise, your comprehensive roundup of everything you need to know about cloud and enterprise software. This Thursday: how IBM squandered its cloud-era chances, Cloudflare thinks it can take on AWS, and the strangest thing Satya Nadella ever did.

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The Big Story

I guess that's why they call it Big Blue

IBM was once — and still is, for people whose main sources of information about technology are television ads during sporting events — an American innovation icon, a company that literally created what we now think of as information technology. But its failure to turn the acquisition of SoftLayer into a viable public cloud continues to haunt the company, which now helps its customers generate revenue for AWS, Microsoft and Google.

That's what more than a dozen current and former IBM employees told Protocol about the last decade inside IBM's attempts to adapt to a changing enterprise tech market. They described a company caught moving in two directions: a group that correctly understood how the cloud was going to play an enormous role in the future of enterprise computing, matched up against a sales-driven culture that prioritized the needs of its large customers over the work required to catch up with AWS.

IBM's cloud development was messy from the start, according to the sources, with plenty of missteps:

  • IBM and SoftLayer executives were shocked to learn that former IBM CEO Ginni Rometty wanted Watson, IBM's dubious crown jewel, to run in SoftLayer on Power processors in a matter of months, chips the cloud hosting provider had never supported.
  • SoftLayer's design philosophy and business model catered to small and medium-size businesses, while IBM counted some of the biggest companies in the world as its clients and they needed enterprise-grade tech if they were going to move to the cloud.
  • A multiyear attempt to build a brand-new infrastructure design never shipped amid internal warnings that it would never scale.
  • Following that, IBM engineers pursued two completely separate and incompatible infrastructure designs for several years and did not launch a key cloud feature requested by almost all customers until 2019, six years after it bought SoftLayer.

And its key product came too late. By the point it could genuinely compete in the market, the Big Three cloud providers had firmly established themselves as the backbone of enterprise infrastructure. How did it get to this point?

  • IBM was handcuffed by its largest customers, who knew they could call senior management and request special one-off features for their applications at the drop of a hat.
  • That forced its product people to shelve roadmaps that could have established IBM as a true cloud competitor to work on special projects ordered by the sales department time and time again.
  • IBM Cloud didn't settle on a unified path forward until this year, and it has endured a string of outages and service problems over the last six months that cast a shadow over its future as a public cloud provider, given that it is pulling back on capital expenditures.

Now, IBM is betting on the hybrid cloud. There's no question about whether that buzzword is a real-world infrastructure strategy in 2021: Even AWS is on board with products its customers can use to manage applications running in their own data centers or other public clouds, which would have been unthinkable for the cloud pioneer to release just a few years ago.

The problem for IBM is that hybrid cloud, by definition, incorporates a public cloud component.

  • At some point in the not-too-distant future, almost all the cloud laggards among the Fortune 100 — some of IBM's most prominent customers — will have developed relationships with AWS, Microsoft and Google for their public cloud needs.
  • IBM and Red Hat can charge customers decent money for software that helps manage hybrid cloud setups, but all three of the major cloud vendors have released their own tools for those needs.
  • Major enterprise infrastructure migrations are multiyear events that set companies up for even more years to come: Before too long, why will IBM's current customers need IBM?

But there may be a silver lining to this story. IBM insiders credited current CEO Arvind Krishna with ending the company's multifaceted approach to its public cloud product strategy once he got control of the division. That gave them hope he could find a way through to yet another one of IBM's fabled turnarounds.

  • However, judging by public and private feedback to Wednesday's story, IBM's problems run deeper than its inability to build a true public cloud.

— Tom Krazit

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This Week On Protocol

R2 units: Cloudflare CEO Matthew Prince enjoys playing the foil to AWS, and this week his company introduced its most direct challenge to one of the cloud leader's core businesses: the S3 storage service. I talked with Prince about R2 ("one less than S3," he said) and how Cloudflare plans to offer cheaper storage options by waiving data-egress fees for its service.

Dream on: Salesforce is on a roll right now, raising revenue guidance for its fiscal year coming off its annual Dreamforce conference. Protocol's Joe Williams assessed the company's fortunes as it digests the $27.7 billion acquisition of Slack and fends off upstarts hoping to make data analytics their calling card.

Next Week On Protocol

Is smartphone innovation over?

Smartphones changed everything about the way enterprise tech was designed and consumed. But 15 years after the debut of the iPhone, is there any innovation left in the category?

Join Protocol's David Pierce for a conversation about the future of the smartphone with Drew Blackard, vice president of mobile product management at Samsung; Christina Cyr, CEO of The Cyrcle Phone; and Nicole Faerber, CTO of Purism, next Tuesday, Oct. 5, at 10 a.m. PT / 1 p.m. ET. RSVP here.

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Our own research with Oxford Economics shows that consumers in Europe, the U.K. and the U.S. are all willing to pay more for products when they are rewarded by the ease and speed of one-click payments. We are also seeing an increasing number of merchants moving toward, and nudging their customers toward, subscription models — and why wouldn't you?

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