There was a lot of buzz this week when IBM announced they were acquiring Red Hat. A lot has been discussed about this in the past five days, including some coverage that I recorded with the Gestalt IT team on Monday. What I wanted to discuss quickly here is the aspirations that IBM now has for the cloud. Or, more appropriately, what they aren’t going to be doing.

Build You Own Cloud

It’s funny how many cloud providers started springing from the earth as soon as AWS started turning a profit. Microsoft and Google seem to be doing a good job of challenging for the crown. But the next tier down is littered with people trying to make a go of it. VMware with vCloud Air before they sold it. Oracle. Digital Ocean. IBM. And that doesn’t count the number of companies offering a specific function, like storage, and are calling themselves a cloud service provider.

IBM was well positioned to be a contender in the cloud service provider (CSP) market. Except they started the race with a huge disadvantage. IBM was a company that was focused on selling solutions to their customers. Just like Oracle, IBM’s primary customer was external. The people they cared most about wrote them checks and they shipped out eServers and OS/2 Warp boxes.

Compare and contrast that with Amazon. Who is Amazon’s customer? Well, anyone that wants to buy something. But who consumes the products that Amazon builds for IT? Amazon people. Their infrastructure is built to provide a better experience for the people using their site. Amazon is very good at building systems that can handle a high amount of users and load and not buckle.

Now, contrary to the myth, Amazon did not start AWS with spare capacity. While that makes for a good folk tale, Amazon probably didn’t have a lot of spare capacity lying around. Instead, they had a lot of great expertise in building large-scale reliable systems and they parlayed that into a solution that could be used to bring even more people into the Amazon ecosystem. They built AWS with an eye toward selling services, not hardware.

Likewise, Microsoft’s biggest customers are their developers. They are focused on making the best applications and operating systems they can. They don’t sell hardware, aside from the rare occasional foray into phones or laptops. But they wanted their customers to benefit from the years of work they had put in to developing robust systems. That’s where Azure came from.

IBM is focused on customers buying their hardware and their expertise for installing it. AWS and Microsoft want to rent their expertise and software for building platforms. That difference in perspective is why IBM’s cloud aspirations were never going to take off to new heights. They couldn’t challenge for the top three places unless Google suddenly decided to shut down Google Cloud Engine. And no matter how hard they tried, Larry Ellison was always going to be nipping at their heels by pouring money into his cloud offerings to be on top. He may never get there but he is determined to make the best showing he can.

Putting On The Red Hat

Where does that leave IBM after buying Red Hat. Well, Red Hat sells software and services for it. But those services are all focused on integration. Red Hat has never built their own cloud platform. Instead, they work on everyone else’s platform effectively. They can deploy an OS or a container system on Amazon or Azure with no hiccups.

IBM has to realize now that they will never unseat Amazon. The momentum behind this 850-lb gorilla is just too much to challenge. The remaining players are fighting for a small piece of third or fourth place at this point. And yes, while Google has a comfortable hold on third place right now, they do have a tendency to kill projects that aren’t AdWords or the search engine homepage. Anything else lives in a world of uncertainty.

So, how does IBM compete? They need to leverage their expertise. They’ve sold off anything that has blinking lights, save for the mainframe division. They need to embrace their Global Services heritage and shepherd the SMEs that are afraid of the cloud. They need to help enterprises in the mid-range build into AWS and Azure instead of trying to make a huge profit off them and leave them high and dry. The days of making a fortune from Fortune 100 companies with no cloud aspirations are over. Just like the fight for cloud dominance, the battle lines are drawn and the prize isn’t one or two big companies. It’s a bunch of smaller ones.

The irony isn’t lost on me that IBM’s future lies in smaller companies. The days of “No one ever got fired for buying IBM” are long past in the rearview mirror. Instead, companies need the help of smart people to move into the cloud. But they also need to do it natively. They don’t need to keep running their old hybrid infrastructure. They need a trusted advisor that can help them build something that will last. IBM could be that company with the help of Red Hat. They could reinvent themselves all over again and beat the coming collapse of providers of infrastructure. As more companies start to look toward the cloud, IBM can help them along the path. But it’s going to take some realistic looks at what IBM can provide. And the end of IBM’s hope of running their own CSP.

Tom’s Take

I’m an old IBMer. At least, I interned there in 2001. I was around for all the changes that Lou Gerstner was trying to implement. I worked in IBM Global Services where they made the AS/400. As I’m fond of saying over and over again, IBM today is not Tom Watson’s IBM. It’s a different animal that changed with the times at just the right time. IBM is still changing today, but they aren’t as nimble as they were before. Their expertise lies all over the landscape of hot new tech, but people don’t want blockchain-enabled AI for IoT edge computing. They want a trusted partner than can help them with the projects they can’t get done today. That’s how you keep your foot in the door. Red Hat gives IBM that advantage. They key is whether or not IBM can see that the way forward for them isn’t as cloudy as they had first imagined.