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Huh? As IBM Readies To Perform The Biggest Corporate Employee Cull In History, It Claims Cloud Leadership

This article is more than 9 years old.

Update - Reuters is reporting that IBM have dismissed the report saying that the layoffs will effect "several thousand" employees only. Watch this space.

Robert Cringely wrote a couple of days ago about Project Chrome, a massive corporate reorganization for IBM that he believes will see Big Blue cull over a quarter of its employees - in real terms that means over 110,000 employees could well be looking for new jobs as early as next week.

Cringely covers the various ramifications of the reorganization, and the causes for it, in particular dwindling hardware sales and a lackluster services revenue stream which leaves the company high and dry. But while he does so, IBM continues to shout from the roof tops about its apparent massive success in the race to deliver the enterprise cloud.

IBM has long been quick to dispute the belief, widely held by most analysts, that Amazon Web Services (AWS) is the largest cloud vendor on the planet. Hardly a month goes by without another missive from IBM claiming its cloud revenues are far in excess of those of AWS. An example from a post I wrote last year:

“The numbers don’t lie — IBM Beat Amazon in 2013; AWS Revenue is Cloudy at Best”. The thrust of the email (and subsequent back and forth between myself and IBM) is that since Amazon includes a bunch of other revenue centers as well as AWS in their “other” revenue category, and that the entire “other” revenue line from the recent earnings was only $3.9B, that IBM’s own cloud revenue figure of $4.4B proves that IBM is, in fact, the leader in the cloud wars.

As I said at the time, IBM's story is illusory at best - its cloud figures always include cloud service AND cloud software. It's a comparison that simple doesn't hold water. Add to that the fact that many commentators suggest that the massive cloud contracts that IBM announces are often simply existing contracts that the company manages to shunt sideways into the cloud revenue column and you have some accounting that simply doesn't add up.

Just last week IBM contacted me to advise that the $7 billion cloud business that it had been promising for a couple of years has finally come to pass. On its fourth quarter earnings call, CFO Martin Schroeter said that the highly strategic cloud business grew by 60 percent last year to hit the aforementioned $7 billion mark. Regardless of the impending layoffs within IBM, the very notion that IBM's cloud revenue even nears that of AWS beggars belief.

So we have an organization that is claiming cloud as its massive growth area, while at the same time seeing massive revenue falls - fourth-quarter earnings were down 11 percent to $5.81 per share while net income dropped some 13 percent to $24.11 billion from $27.7 billion - something doesn't add up.

Clearly IBM's cloud business is growing - its SoftLayer cloud infrastructure offering is growing a steady following and its BlueMix Platform as a Service (PaaS) looks interesting as a mid term revenue generator.

What we're seeing here is a classic example of a traditional business trying to reinvent itself for the cloudy age and discovering, to its detriment, that cloud is fundamentally different. The way you sell it, the margin you can make from it and the investment it demands are all very different. The very reason AWS has done a stellar job of building its cloud business is because it was totally unconstrained by conventional thinking and legacy norms - the cliched picture of the enterprise salesperson driving a sportscar and buying clients expensive dinners is the reality for the likes of IBM, but it is an almost entirely foreign concept for AWS and its ilk.

On the one hand, IBM and its under-fire CEO, Ginni Rometty, have little choice. The company is a slothful behemoth with copious fat reducing its ability to move quickly. Its cloud business is actually a positive one, but it is weighed down by the rest of the corporate baggage. On the other hand, though, the reality is that enterprises choosing IBM for cloud generally do because of an existing relationship. They buy into the "IBM is a safe bet" story and succumb to the "no one was ever fired for buying IBM" line. These same customers will take a very dim view of such massive layoffs and the ensuing trauma that they will cause. This disquietude will in turn hamper future sales discussions and contract renewal meetings.

The future for IBM looks a little bleak, and while the continuing barrage of PR will help tell the story of isolated success, the macro picture looks worrying. For customers, the industry as a whole and especially the 110,000 or so employees and contractors likely to be out of a job in the next month.

 

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