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NEW YORK — IBM ended its 2009 fiscal year with over $14 billion cash on hand, and at least some of that will be spent on beefing up its ability to deliver enterprise cloud computing solutions and services.
The company expects cloud computing to add $3 billion in net revenue by 2015, according to Walt Braeger, IBM’s
IBM’s already dished out plenty of cash on large cloud computing acquisitions, many of them relatively low-profile (less than $1 billion) — but a few stand out. Earlier this year, IBM spent $1.4 billion on Sterling Commerce, which was a unit of AT&T. The company focuses on providing software that helps companies manage their channel relationships. The company also acquired Cast Iron Systems for an undisclosed amount in May. Cast Iron Systems helps IBM connect its cloud to traditional and legacy software systems.
“With this acquisition, different clouds can talk to each other,” Braeger told InternetNews.com during an IBM press event on Tuesday. “If an event happens outside your domain, you can import the data. The cloud is a hybrid of public and private.”
Without referring to any specific company, Braeger said that IBM will focus on adding further expertise in specific industries with future acquisitions.
“Financial archiving and records management is one growth area,” he said. “Healthcare is another. Cloud computing can improve collaborative care, clinical trials, and deliver medical imaging in new ways. Name an industry and there’s a use case for cloud computing. The telecommunications industry is another.”
Asked how IBM differentiates itself from cloud offering from Microsoft and Amazon, Braeger said that IBM seeks customers who want to use the cloud to transform their business.
“I see a stratification of buyers in the cloud computing space. Many companies are still in the exploratory phase, but some CIOs are looking to the cloud to achieve the efficiencies that are being asked of them in the current environment,” he said, adding that while the cloud sells on its ability to deliver savings, its true power is achieved in business transformation.
“Take the Aetna collaborative care cloud,” he said. “We link medical records from health care claims, physicians, and pharmacies and present a synthesis in real time at the point of care.”
As the cloud breaks through organizational barriers, however, it raises security concerns that Braeger takes very seriously, calling them “the No. 1 inhibitor for cloud adoption.”
While IBM — or any company currently playing in the market — cannot deliver a 100-percent security guarantee, Braeger said that Big Blue’s customers know that the company focuses on the issue.
“Clients trust that we have a framework for security,” he said. “Sometimes we have to work with clients to figure out the issues. With a client like the Air Force, we work collaboratively to define a secure environment, looking at what risks to expect, running simulations, and determining what areas we need to fortify.”
The U.S. Air Force has said that IBM is working with it to “demonstrate how cloud computing can be a tool to enable [us] to manage, monitor and secure the information flowing through our network,” according to a statement from Lt. Gen. William Lord, the Air Force’s CIO and chief of warfighting integration. “We examined the expertise of IBM’s commercial performance in cloud computing and asked them to develop an architecture that could lead to improved performance within the Air Force environment to improve all operational, analytical and security capabilities.”
The physics of cloud computing
The business of cloud computing is surprisingly local, so Braeger has a busy, globetrotting travel schedule, and he admitted that IBM will need to have a physical presence in many of the nations in which it hopes to build a customer base for its cloud computing offerings.
He noted that the company already has a multibillion-dollar investment in its service delivery centers, located all over the world. Cloud computing centers have to located next to major Internet points of presence, because they require massive amounts of reliable bandwidth.
So far, IBM has not encountered bandwidth constraints as it grows its cloud computing business, but that could change as the focus turns to developing markets, where solutions will need to incorporate low-bandwidth mobile devices.
In some cases, companies will utilize IBM’s cloud appliance, called CloudBurst. While a physical device that delivers a cloud may seem like an oxymoron, this is one of IBM’s many answers to customers’ security fears: If you’re very, very worried, put it all in one box at your own business location.
When it debuted last year, IBM CloudBurst was targeted especially at developers. That’s due in part to the fact that developers drive so much business value that the typical enterprise devotes 30 to 50 percent of its entire technology infrastructure to development and testing, IBM said. However, all but 10 percent of that infrastructure often remains idle, it added — making the case for a scalable, flexible, self-serve cloud infrastructure.
Cloud Infrastructure Paying Off for Developers
Braeger claimed that thus far, cloud projects in enterprise testing have delivered on all the hype surrounding the cloud, with an ROI in just four months — no doubt making these projects extremely attractive to cash-strapped enterprise IT organizations.
Such projects require a long laundry list of components to be put into place before they can begin delivering, though: self-service access to resources, a detailed service catalog, and infrastructure ready and available for instant provisioning. In the past, those have always proven to be pain points for developers and enterprise IT. For instance, developers dealt with bureaucracy when requesting a system on which they could test a new application, Braeger said.
“The request would take time, so the developers would overprovision in their request. Then, once they got the resources, they’d hoard them. Developers would not give back the resources they had obtained,” he said.
Now, he said, the situation has changed thanks to a cloud-based infrastructure. “IT managers fear the services catalog until they actually do it. Once developers see they can actually obtain an environment provisioned in minutes (maybe they need to do it twice to believe it), the entire culture changes. Developers request only what they need, and when they’re done, the environment automatically de-provisions those resources.”
Of course, changing the model so radically also requires IT to revamp other functions beyond simply deploying resources — for instance, it needs to develop the capacity to charge other departments for use. And departments must be willing to be metered.
Still, Braeger said these are unlikely to be major obstacles. In many large enterprises, IT departments already have an accounting function and an auditing function that’s standardized, using an international system such as ITIL or ITSMF. This makes IBM’s job easier, because modules that work well in a particular auditing system can be reused across a wide spectrum of customers.
“Tivoli works with these standards. Our Tivoli team presents to the standards bodies and is active at auditing conferences,” Braeger said. He added that other key processes, such as analytics, online transaction processing (OLTP), and even human resources can also be built in the cloud and delivered in modular format to IBM’s cloud clients around the world.
Making Good on Cloud Computing Hype
But with so many sizable changes sweeping through the enterprise, there’s bound to be internal pushback and other complications regardless of the early evidence of a quick return on investment. IBM CEO Samuel Palmisano, during his company’s annual meeting this year, told shareholders that despite the upheavals, technologies like the cloud are poised to revolutionize how IT functions within the enterprise.
“Underneath the surface turmoil, this moment presents a transformational opportunity,” he said. “Everywhere around the world, people are eager for change. And every day, more and more forward-thinking leaders are creating tangible outcomes and benefits, making their parts of our planet smarter.”
And while Braeger admitted that cloud computing hype is currently at a fever pitch — which industry researcher Gartner would call a “peak of inflated expectations” that is inevitably followed by a “trough of disillusionment” — he’s able to point to the cloud’s demonstrated success in delivering a fast ROI and more efficient IT services as a reason not to worry.
“We hope to avoid the trough,” he said.