When IBM Corp. delivered Q1 2016 earnings results yesterday, the financial picture revealed an ongoing business transition. There's certainly some progress on multiple fronts. But big challenges remain. Chief among them: IBM's cloud team doesn't quite have a feel for the MSP software ecosystem, ChannelE2E believes, and that's a big missed opportunity.
Let's start with the positives. As IBM's PR reps pointed out:
- IBM beat analyst estimates for earnings per share ($2.35 vs Street estimate of $2.08 a share).
- The company also beat revenues ($18.7 billion from continuing operations vs. Street estimates of $18.2 billion).
- It's the second straight quarter that IBM had a beat-beat, IBM's PR team asserts.
IBM Q1 Cloud Revenues 2016: A Closer look
So far, so good. But those bullet points overlook the fact that Big Blue's quarterly revenues have dipped to their lowest point in 14 years. Plus the company's quarterly revenues have declined in 16 consecutive quarters, Reuters notes. IBM shares are down 6 percent today. The ongoing concern is a familiar one: Pundits wonder if or when IBM's "strategic imperative" businesses (cloud, analytics, security, social and mobile technologies) will ever grow quickly enough to offset the company's struggling hardware, software and IT services businesses.
In some cases, IBM's growth claims are somewhat misleading. The company says it has generated cloud revenue of $10.8 billion over the last 12 months, "making IBM the largest cloud provider." Frankly, I respectfully disagree. Firmly. That Big Blue cloud figure includes a bunch of hardware, software and services sold as part of cloud projects. The figure isn't a pure "as a service" metric -- where rivals like Amazon Web Services are thriving.
In IBM's defense, the company does point to "as a service" momentum, stating that the annual run rate is $5.4 billion, a 46 percent jump from Q1 last year. But there again, the "run rate" number isn't an actual revenue number. Instead, I believe it's one month of "as a service" revenue multiplied by 12 to give you an annual run rate. Please, IBM: Just tell investors the real quarterly cloud as a service number, and stop with the run rate claims.
IBM Cloud ISV Challenges, Opportunities
IBM's real challenge -- and opportunity -- involves ISVs. The company must entice independent software vendors (ISVs) to run their workloads on the IBM Cloud and SoftLayer cloud. Yes, Big Blue is making considerable progress with ISVs. Initiatives like BlueMix inspire ISVs to build, manage and run all sorts of applications on IBM's cloud platforms.
But there are serious gaps in IBM's cloud ISV strategy. I saw them firsthand at IBM PartnerWorld earlier this year. A case in point: Continuum was the only MSP-centric software company serving SMB partners at the show (at least to the best of my knowledge). Alas, most of the major MSP software providers to SMB partners are running their cloud workloads over in Microsoft Azure or Amazon Web Services. Amazon also has a very successful MSP partner program.
IBM has attempted to engage MSPs on multiple fronts over the years. First came a server push, which attempted to inspire MSPs to build data centers atop IBM hardware. But that effort stumbled when Big Blue realized most MSPs were no longer building their own data centers. More recently, IBM has been trying to rebrand many IT consulting partners as MSPs. But at IBM PartnerWorld, some of those partners quietly said they weren't really MSPs. In fact, some are hardware resellers that are still upset about IBM's decision to sell its x86 server business to Lenovo.
So, what's the fastest way for IBM to gain more MSP credibility? I'd start to work with software companies that supply business management tools to MSPs. Get those workloads running in the IBM cloud, and perhaps small business MSPs will also warm up to more of IBM's cloud services...
Of course, IBM deserves equal time on this topic. And I certainly don't want to overlook the company's progress on multiple fronts (cloud, analytics, security, social and mobile technologies). I just wonder if or how Big Blue will really master the SMB market with MSPs. We'll be sure to follow up on this conversation -- directly with IBM -- soon.