To hear IBM and Microsoft tell it, their respective cloud strategies are coming up rosy. But given the lack of real numbers, it’s hard to tell if that’s the case. These two incumbent tech giants, which both hosted earnings calls last week, are under the microscope as they navigate the transition from client-server computing to the cloud services model pioneered by younger competitors like Amazon and Google.
IBM first. Last week, speaking on IBM’s fourth quarter and 2011 fiscal year earnings call, CFO Mark Loughridge said the company tripled its cloud revenue year over year. That’s impressive as far as it goes — which isn’t very far. What IBM means by “cloud” remains murky, and no actual dollar amount was attached to this claim. (A transcript of the call is here.)
An IBM spokesman said the cloud number counts revenue related to the work it does building private clouds for customers, including software and hardware; delivering public cloud services (Smart Cloud Enterprise); and industry-specific cloud services (Smarter Commerce). Beyond that, the company doesn’t break cloud revenue out.
Here’s what IBM has said about cloud: Last March, IBM’s then-CEO Sam Palmisano said the company expects to log $7 billion in Software-as-a-Service (SaaS) related revenue by 2015. Then in November, IBM Software SVP Steve Mills told InformationWeek that his unit was making “hundreds of millions of dollars” in SaaS revenue. (Such SaaS revenue is one indicator of a company’s cloud business.) As InformationWeek’s John Foley pointed out, while that figure was fuzzy, at least it was something. He wrote:
Until now, IBM hasn’t shared any numbers on its cloud computing revenues, other than to provide a forecast of where it hopes to arrive: $7 billion by 2015. Where that number stands right now has been anyone’s guess.
IBM has come up with internal metrics to count “cloud computing” sales from all the various hardware, software and services units, Mills said. But it has not shared those metrics with anyone outside Armonk. On its call last week, IBM added no more clarity around its cloud revenue figures or where cloud revenue actually comes from.
Microsoft cloud metrics also fuzzy
Microsoft executives offered vaguely encouraging comments on the state of its cloud business on the company’s second quarter earnings call on Thursday.
Office 365, Microsoft’s hosted Office and SharePoint offering, is leading the charge. On the call, CFO Peter Klein cited more than 100,000 Microsoft online services customers as an example of Microsoft’s cloud traction, but since Microsoft said there were 100,000 customers when Office 365 launched last June, this does not seem such a big deal. If there has been big momentum there in the past six months, this would have been a good time to say so. (A transcript of the call can be found here.)
Klein also touted double-digit revenue growth in the company’s business applications group, but that’s a big bucket. It includes on-premises Office and SharePoint as well as their SaaS counterparts, so it’s unclear how much of that growth can be attributed to cloud. Similarly, Azure is lumped into Microsoft’s overall server and tools group, which saw an overall 11 percent growth year-over-year but which also includes the company’s bustling SQL Server, Systems Center, and Windows Server businesses.
To be sure, Microsoft remains in investment mode with Azure; very few of Microsoft’s own products run on Azure as of yet, but the goal is for them all to be hosted on the Azure platform at some point in the future. The question is when.
To be fair to these incumbents, not every customer wants to put all its work in the cloud, so vendors like Microsoft that offer a deployment choice have a leg up there. But it’s clear that cloud deployment is the fast-moving train.
Cloud or smoke-and-mirrors?
IBM and Microsoft are hardly alone in this tough transition. SAP and Oracle, the top-two powers in enterprise software, are similarly focused on moving to cloud without dinging their existing on-premises software businesses. They’re doing this both through acquisition — SAP recently bought SuccessFactors and Oracle most recently bought RightNow — and internal development.
Just how well IBM, Microsoft and other legacy tech giants do transitioning from an on-premises software business to a cloud model or balancing the two — will not only determine how they fare against cloud companies like Salesforce.com, NetSuite, Workday, and Google, but how well they’ll do in general as more technology purchases shift to an on-demand model.