We thought the cloud leaders were clear and had ranked them 1,2,3 as Amazon, Microsoft, and Google. I never really understood this because when you talk about market leadership, you generally talk about revenue, but Google just broke out their cloud revenue, and in the latest quarter, they did $2.6B in revenue, and in their latest year, they did a respectable $8.9B. But, here is the thing—IBM, who once dominated the technology market, did $6.8B for the quarter and $21.2B for the year, which is over twice the revenue for the quarter and nearly three times the revenue for the year that Google did.
Now Google certainly is a major user of their cloud with services like YouTube and search, but we typically don’t measure market share based on what a vendor uses themselves but what they sell to others, and here IBM is ahead of Google.
Let’s talk about what this means this week.
Why Third Place Is Important
Like a horse race, you typically don’t care who comes in fourth. If you are looking for a technology supplier, and are a large company, you will typically focus on the top 3 vendors in any space. So, it is important to be in the top 3 if you want to be seriously considered. Given Google, and Android, typically didn’t break out their revenue very well and we knew that Android/Google mostly made their money from online advertising and from selling customer data to third parties it always seemed odd that they were ranked so highly in cloud revenue because you’d think most large companies would avoid them like the plague given their business model.
But as long as that revenue was buried, the massive amount of revenue they made from their major business certainly made it look like they were in Amazon and Microsoft’s league even though it makes it look like a lot of IT folks were taking incredible risks with their customer and company data. Well, the breakout of revenues showcases that far fewer IT folks are willing to take this risk and that a far larger number trust IBM—historically one of the most trusted companies and brands in the market—more.
It shouldn’t be a surprise that, given a choice, between a vendor you can trust with your firm’s critical data and a firm that makes a business out of selling data on others that IT buyers would choose the firm that is secure by design over one that mines customer data for a living.
What Third Place Cloud Provider Means to IBM
A few years back, IBM didn’t really have a serious cloud offering and lost a major government bid to Amazon, who was dominant in the cloud at that time even though Amazon didn’t meet all the bid conditions (like security) either. IBM then bought SoftLayer, a second-tier cloud provider, and worked to make their combined offering first tier. Now that we can see Google’s real numbers, IBM has made the cut and now is one of three first-tier cloud providers in the US.
This ranking change should allow IBM to increase its sales volume in the segment and compete more aggressively as a peer to both Amazon and Microsoft. And, like Microsoft, and unlike Amazon, their cloud offering is core to their new business model, having made a CEO change to Arvind Krishna, much like Microsoft did when they promoted Satya Nadella to CEO a few years back. Both changes make the cloud in their respective companies’ first-priority offerings, and that means IBM should be even more trusted in this space than Amazon, which still ranks their retail business as their primary business.
The most strategic efforts in any company tend to get the resources and support and, cloud services are neither Amazon nor Google’s primary focus. By the way, I should point out that Blind, an anonymous professional network, ran a survey and found that a majority of IBM employees also feel that Arvind Krishna will have a positive impact on IBM’s fortunes.
I’m sure to IBM the release of Google’s sales performance was a bit of a wake-up call as it not only pointed out that they were in third place, it suggests they’ve been in third place for over year and didn’t know it. That will likely piss them off a bit, and, I expect, they’ll work to make everyone realize that they, not Google, are in third place in cloud revenue.
Even though Arvind just started, he’ll get the benefit of this switch, which he helped drive in his prior role, showcasing again that he is the right guy, at the right time, for IBM.