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Where’s IBM Headed in the Cloud?

They’ve made it no secret they plan to mine the cloud market for all it's worth

As IBM turned 100 this month, the company received a lot of fanfare and attention. Amazingly, this tech giant has managed to stay relevant in the fast-paced world of enterprise technology for a century. Since Big Blue's birthday, many media analysts have reflected on past achievements and milestones while others touched on their current innovations. I'm a fan of the retrospective approach, but I often find it more interesting to think about where a company is headed rather than where it's been.

In the spirit of forward-looking analysis, I decided to dig into IBM's merger and acquisition strategy. The name of Big Blue is never far from the topic of tech mergers and acquisitions, so I thought it'd be an interesting angle to take given the company's 100 year history. Naturally, I had to dig a bit into IBM's history to understand their future. For starters, I took a look at the last 10 years of IBM's mergers and acquisitions.

As I examined IBM's history, it was fairly obvious that they love to purchase in services and analytics. They purchased 14 services companies in the last decade alone. They also dropped a pretty penny in business analytics, an acquisition category marked by their purchase of Cognos that cost them a cool $5 billion. These were obvious areas of continued focus, but IBM never stays in one place too long - take a look at their portfolio and you'll see what I mean.

As I thought about their strategy, one thing came to mind: the cloud. IBM's made it no secret that they plan to mine the cloud market for all it's worth. According to their estimations, they expect it to be a $7 billion a year business by 2015.

That's all well and good, but the cloud is really more of a marketing concept than an actual thing. You can't simply buy a chunk of the cloud market; you need to buy the things that make the cloud run. From an IBM perspective, I see three major areas of focus in the cloud market: cloud infrastructure management, cloud application performance management, and cloud services. In each of these categories, I came up with a couple of companies that I can see them purchasing in each of these areas.

Cloud Infrastructure Management
IBM has always made it a point to manage infrastructure. It's part of their strategy to remain largely brand agnostic in their dealings with large enterprises. They have made a killing off this market with their Tivoli systems management unit in the on-premise world. Why shouldn't they be able to do this in the age of the cloud as well?

When considering the market for companies of this nature, two companies stand out in my mind: Eucalyptus and RightScale. Eucalyptus is a great purchase on the private side of the cloud for enterprises that want to keep it all at home. RightScale is where it's at in terms of the public cloud. They work with nearly every major cloud provider - Amazon EC2, etc, - and they have experience deploying roughly 2 million servers. These are both still relatively small companies, but with a nudge from Big Blue they could become a force to be reckoned with.

Cloud Application Performance Management
This just seems like a natural fit for IBM to take over in this space. It's an application that runs deep in the technology stack and is built for IT professionals. It jives with the IBM style. It's another area of cloud management that IBM could focus on.

The two vendors that come to mind here are AppDynamics and New Relic. Of course there is plenty of competition in this space but these companies are young and making waves in application performance management. AppDynamics already has a customer base of 30K and supports companies like Taleo. They're making things happen. New Relic is also a great vendor in this space. They are a lot like AppDynamics but they support even more programming languages. They've also got a strong base in the world of small and medium businesses (SMBs).

Cloud Services
As IBM looks to the cloud, it just seems logical that services will be a part of their strategy. Professional services make up a huge portion of IBM's revenue so there's no reason that they'd turn their back on this segment now. There are a lot of firms out there that have some cloud capabilities, but there are relatively few that focus purely on working in the cloud. If IBM were to snap one of these guys up, they'd bring a dynamic offering to their already powerful services market.

One of the cloud services companies that is shining brighter than many of the rest is Appirio. They've been around for a while but they recently shifted their focus to the cloud. In addition to their professional services, they also have a lot of their own custom code they can use to help a business in need. In addition, they've started to focus a lot on mobility, which is a hot item in the enterprise these days.

Alternatively, they may consider the smaller Milwaukee-based firm called Xorbix Technologies. They aren't as well known as Appirio in this space but they are doing some good work. Even as a small firm, they're working with some of Salesforce.com's and Google's biggest customers. Either purchase would play nicely with IBM's portfolio of professional services.

Well, there you have a few of my ideas of where IBM might go in the cloud. As such a vast company, their M&A strategy is difficult to discern but I think these are reasonable areas for IBM to shop around in. Of course, these aren't the only places that I think they may look to buy. After all, they recently stated that they're willing to let go of $20 billion in the next five years. I've listed more of my ideas on my blog at Software Advice.

Think you know where Big Blue is headed? Drop by Software Advice, a company that reviews wholesale distribution software, and leave your comments. Don't forget to vote in our poll. You can see the full article and poll at IBM Mergers & Acquisitions: Who's Next?

More Stories By Derek Singleton

Derek Singleton recently graduated from Occidental College with a degree in political science. He writes about various topics related to ERP software and covers the manufacturing, distribution, and supply chain management software markets.

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