Why IBM/Red Hat just might become a cloud powerhouse

Amazon Web Services is the clear cloud winner, sitting on a run rate of $27 billion and continuing to grow at 45 percent (or better). Where AWS’s lead is a bit murkier, however, is in the area of hybrid cloud, that mix of private and public cloud resources that AWS reluctantly embraced, while others raced to promote. Those others, especially Microsoft and IBM (with significant help from Red Hat), have a real shot at owning a bigger share of cloud growth, precisely because of their roots as stodgy and dull enterprise vendors.

There’s no question that enterprises and other organizations are moving to public cloud as quickly as they can. There’s also no question that “as quickly as they can” turns out to be “not very fast” in most instances.

Where CIOs see their IT spend falling—and increasing

According to a recent Credit Suisse survey of 90 enterprise CIOs, spending on IT will decelerate in 2019 from 4.9 percent growth to 4.0 percent growth. This general decline, however, obscures the fact that one area CIOs see growing—and considerably—is cloud computing.

Against this backdrop, it’s interesting to see which vendors CIOs expect to see their spending decline the most:

1. IBM: 46 percent
2. Oracle: 38 percent
3. Dell: 33 percent
4. Hewlett-Packard Enterprise: 32 percent
5. Cisco Systems: 32 percent
6. SAP: 21 percent
7. NetApp: 19 percent
8. HP: 19 percent
9. Microsoft: 17 percent
10. IBM’s Red Hat: 14 percent

And which vendors CIOs expect to see the biggest increases:

1. Microsoft: 74 percent
2. Amazon: 62 percent
3. VMware: 34 percent
4. Salesforce: 34 percent
5. Google: 26 percent
6. Dell: 24 percent
7. Cisco Systems: 22 percent
8. Oracle: 16 percent
9. SAP: 14 percent
10. IBM: 12 percent (Red Hat: 1 percent)

Asked another way, these same CIOs told Credit Suisse which vendors will be their most strategic partners over the next three years (respondents could select as many as three vendors). Microsoft was tops, with nearly double the rating of any other vendor (at 84 percent), with VMware (48 percent) and Salesforce (48 percent) both tying for second. IBM mustered a mere 14 percent, and Red Hat fell into the “Other” category.

The hybrid cloud is a big bright spot in an otherwise decelerating IT landscape. AWS takes the top spot as being “most critical to your hybrid cloud strategy,” with Microsoft (82 percent) taking second, and everyone else way below these two: Google at 44 percent, VMware at 32 percent, Oracle at 13 percent, IBM at 13 percent, and Red Hat at 2 percent.

After AWS, it’s Microsoft and—just maybe—IBM/Red Hat

A big part of the reason that CIOs expect to spend so much with Microsoft is that the Redmond-based giant has long been a strategic partner. Couple that with its solid public cloud and hybrid cloud credentials, and you have a match made in heaven. Microsoft isn’t going to topple AWS any time soon, given that the public cloud leader has rolled out a strong hybrid cloud story, particularly in its partnership with VMware. But Microsoft is sitting in a strong position to capture an ever-growing share of the cloud pie.

Other vendors are harder to get a read on, but for other traditional enterprise vendors with a strong claim to cloud ascendancy,IBM with its Red Hat subsidiary makes an interesting choice. While Oracle has largely punted on making big moves, hardly spending any capital even to grow its data center footprint, IBM invested $34 billion to gobble up Red Hat. Separately, neither company was lighting the fire of CIO imaginations, as measured by Credit Suisse survey data, but together they just might. This is because arguably the biggest strike against Red Hat was its lack of scale. IBM’s ownership, done right, could solve this.

But one big blight on the IBM/Red Hat cloud option is that while the world is decidedly hybrid today, that’s not where CIOs see things moving. In fact, while 32 percent of those surveyed see “no change” or a decline in public cloud spending in 2019, everyone else sees significant increases. Those same CIOs saw no change or declines in 2018. More tellingly, 51 percent expect to shutter some or all of their private data centers and instead outsource to public cloud companies.

Additionally, when asked what percentage of their IT budgets they were spending on public cloud, 56 percent of CIOs said that they were investing less than 10 percent of their total IT budget in public cloud today, but that percentage of CIOs drops precipitously to 32 percent in one year and to 18 percent within three years. Within three years, 33 percent of CIOs surveyed will spend at least 30 percent of their IT budgets on public cloud services, up from just 9 percent today.

Yes, IBM has public cloud services. No, no one particularly cares about them. But, again, put IBM’s sales and marketing heft against things like Red Hat’s OpenShift and maybe, just maybe, we could see another strong cloud competitor to give AWS and Microsoft, in particular, a run for their cloud money.