IBM Makes IaaS Play with SoftLayer Acquisition

IBM plans on acquiring SoftLayer Technologies, a massive cloud-computing infrastructure provider. Terms of the deal went undisclosed, but an unnamed source told The New York Times that Big Blue had paid out roughly $2 billion.

IBM will integrate SoftLayer’s public-cloud services with its own IBM SmartCloud portfolio. In theory, that will allow IBM to more speedily deliver a combination of private, public and hybridized cloud platforms to business clients. CloudLayer features include the ability to deploy virtual cloud servers (with processors 2.0GHz or faster), a content-delivery network with scalability and security, an object-storage platform based on OpenStack Object Storage, and private-cloud solutions.

IBM has been pushing hard into the cloud, rolling out a set of Software-as-a-Service products designed to help with marketing, e-commerce, human resources, and other business tasks. In May, the company announced that its Watson supercomputing platform would serve as the “brain” for a cloud-based customer service initiative.  Its SmartCloud has grown to offer productivity tools and social features.

While the SoftLayer purchase could accelerate IBM’s presence in the public cloud and Infrastructure-as-a-Service (IaaS) spheres, it faces much competition in that arena from the likes of Google, Amazon, and others.

On June 3, the day before IBM’s acquisition announcement, Microsoft revealed that it would restructure how it charges for virtual-machine usage on its Azure platform; customers can now pay by the minute as opposed to the hour. That seemed like a move designed to counteract recent price cuts by Amazon and Google to their respective IaaS services, and it could be the first salvo in a new pricing war that will see the various IT giants slicing their IaaS fees to the proverbial bone.

Those IaaS price cuts demonstrate a key challenge for IBM and other companies as they plunge into the cloud. On one hand, it seems as if every potential client on the planet wants their infrastructure, platforms, and software as services. But such demand sparks competition that makes delivering those cloud services more costly for all IT vendors in the arena. In other words, the days in which one or two companies could enter a particular cloud vertical and rack up high margins with relatively little competition are over; from here on out, every vertical will likely see sustained battle, which could reduce profits as companies devote more revenue to keeping products updated and services operating as they should.

The IT vendors in question realize this, which could be driving the recent uptick in acquisition action: why spend the time building out an IaaS platform, or even a narrow set of cloud features, when you can purchase a smaller company with those capabilities? That could be the thinking behind IBM’s SoftLayer buy; the question now is whether IBM can merge the SoftLayer assets with its existing cloud services and software in a way that allows it to effectively push back against SAP, Google, Microsoft, Oracle, Amazon, and a host of startups.

 

Image: Maksim Kabakou/Shutterstock.com

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