IBM's Most Competitive Business Unit Keeps Amazon, Microsoft Out

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- By Sangara Narayanan

When it comes to the cloud computing industry, as-a-service applications companies like Amazon (AMZN), Microsoft (MSFT), Salesforce (CRM) and Oracle (ORCL) are the ones that walk away with the bulk of the media's limelight. Interestingly, however, it is actually IBM (IBM) that is silently walking away with a fair share of the market.


Thanks to the company's legacy business streams that continue to weigh down on Big Blue's growing parts, everyone appears to be talking only about how IBM continues its revenue decline instead of how IBM is building these new business units for the future.

For starters, Microsoft and Amazon are both racing towards $20 billion in annual cloud revenues by 2018, but IBM's Analytics unit single-handedly posted $19.5 billion in revenues for 2016. No other company comes even close to it in the niche space that analytics occupies.

IBM practically bulldozed its way into the cloud by going on a shopping spree for the past several years, spending billions of dollars to build a cloud services portfolio. In the process, the company ended up building a huge services line-up around Watson, its AI-powered data analytics platform.

The $19.5 billion in sales represented a growth of 9% compared to the previous year. Clearly, this unit must have something working in its favor to allow it to post near-double-digit growth despite its size. Analytics is a niche area where there are several smaller players, but no big player in the market. Mainstream cloud solutions providers aren't in this space in a big way. Amazon relentlessly focuses on IaaS services, and Microsoft wants to be in control of collaborative software (Office) and is also slowly moving towards the enterprise software space where Oracle and Salesforce have significant stakes.

None of these companies have a product that can compete with IBM Watson on an even scale. Considering the size of the unit, IBM has already run away with the market. That lack of competition is what is helping IBM steadily expand its numbers in analytics, and there is no other product of such size and scale to compete with them, simply because it's not easy to build something similar.

Amazon and Microsoft can, but they have their focus on other areas where they can play to their strengths. Furthermore, with IBM firmly entrenching itself in the analytics segment, the incentive for Microsoft and Amazon to enter into that segment is only getting smaller. There's nothing stopping IBM from building the deepest and widest AI-based analytics product portfolio in the world and, in turn, gaining a moat wide enough to withstand any future onslaught.

Disclosure: I have no positions in the stocks mentioned above and no intention to initiate a position in the next 72 hours.

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