IBM Shakes Up Its Traditional Enterprise Business With Bet on Cloud Solutions

IBM is faced with the difficult task of balancing its traditional enterprise business with a growing cloud business. Its new Cloud Business Solutions portfolio has components you’d find in a traditional enterprise deal but IBM sells them 'as a service'. They contain consulting services, pre-built assets, software products, ongoing support and SoftLayer cloud infrastructure in a single client agreement.

The company plans to deliver a total of 20 solutions in the portfolio this year, each aligned to a specific industry need, from mobile to fraud prevention. They integrate assets and expertise from IBM Research with advanced analytics "as a service" and are packaged for fast, simple access and rapid implementation. Each solution has six to eight industry -specific models.

Traditionally theses type of package deals would require a multi-year commitment and a ton of upfront capital. The new breed of solutions from IBM don't ask anywhere near such a level of commitment. “It makes a ton of sense if there’s technology risks, limited capital; maybe the usage patterns are highly variable, so they want to leverage the cloud,” said Dave Seybold, vice president of IBM's Global Business Services division. “We are going beyond infrastructure services. These are industry- , client-specific mission-critical solutions. What we’re trying to do is get clients to take risks. Leveraging labor and support models without term.”

IBM is focusing more on systems of engagement than systems of record. "We’re putting it all together in a single contact with a baseline charge and a usage fee model. This is the way clients need and want to buy," Seybold said.

Risking loss of lucrative long-term contracts

There are risks for IBM here, namely threatening a traditional enterprise IT business that has been very lucrative for the vendor. The new approach to services takes away guaranteed multi-year contracts or big upfront software license sales, but these are risks IBM is willing to take. "It’s recognizing revenue only as the client takes advantage," Seybold said. "The risk is if the solutions don’t succeed, there’s less ability to recoup cost on our part. But if we do this appropriately, we shouldn’t have to worry. That’s the way clients want to buy. This is the way we need to do business."

He said it was all about flexibility. There are enterprises that know what they want; in those cases, they can still sign those multi-year deals. "We have to be willing to sell it or rent when required. In general, this is going to become a business model that clients are going to choose. Maybe if the solution is [needed for] seven-10 years, it’s probably more cost effective to buy upfront. When that’s the right model, they’re going to buy it. We’ll execute a more traditional model. But when there’s technology risk, any number of factors, uncertainty, this is an alternative. "

"IBM is making a lot of changes to the way it does business to accommodate this initiative. 'We’re made up of divisions; we’re bringing all of those groups together. You have to eliminate overlap. You have to make it simple, easy."

First Cloud Business Solutions include: