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Why did IBM dump its commodity server biz? Amazon

Maybe it’s because my head’s in the cloud so much, but I view IBM’s planned divestiture of its server business as a direct response to the growing threat it sees from Amazon(s amzn). Simplistic, yes, but that doesn’t make it wrong.

Here’s how AWS drove (or at the very least helped drive) IBM(s ibm) to act:

  1. In the past 3 years AWS emerged, like an aircraft carrier out of the fog, as a prodigious competitor to IBM in IT services. The fact that AWS won the CIA cloud contract over IBM despite quoting a higher price, crystallized that for anyone who had doubts
  2. Buying trends among Amazon and its webscale cousins Facebook(s fb), Google(s goog), Yahoo(s yhoo) pulled the rug out from under brand-name X86 server makers. These companies thirst for simple, cheap hardware and increasingly they either design their own boxes to be built by white-box providers like Quanta and Wistron. Or they just buy cheap servers off the rack from such suppliers.
  3. As more corporate workloads — CRM, e-mail, office productivity applications — flow to SaaS providers and more in-house product development to AWS the companies that used to buy hardware from IBM or HP etc — don’t have to upgrade their own servers as often. Or when they do update, they buy fewer servers since virtualization lets them cram more workloads on fewer boxes.

All of that churns up a perfect storm for legacy providers like IBM. The company’s decision to sell its server unit to Lenovo, and to devote more time and resources to its SoftLayer-focused cloud efforts, is the direct result.

4 Responses to “Why did IBM dump its commodity server biz? Amazon”

  1. Rich Miller


    Give IBM credit where some credit is due. Consider IBM’s spin-off of typewriters, copiers, printers, semiconductors, satellite communications, networking services (multiple times), disk drives, and PCs. (Not to mention meat grinders in the 1930s.) Yes, infrastructure as a service has, in the course of 6 years, changed the economics of the mid- and low-end server business. And, yes, that has put IBM, Dell, HP and anyone else that was an arms merchant to the SMB in the position of considering the commercial viability of ‘name-brand’ hardware.

    Not only have IBM timed their spin-offs pretty well, they have had the acumen to identify and invest in ‘the next big thing.’ Consider the moves made by Gerstner 20 years ago, and run through their history. Taking a historical perspective, they’ve done a good job of it.
    That doesn’t mean automatic success in the next phase of IBM’s ‘career’, but it DOES provide a better POV than some of the catastrophic thinkers among the technorati. Take a look at the FT article ‘IBM: half done.’

  2. Following their acquisition of Softlayer, the announcement of 15 new data centers this year and now dropping the legacy server business, it looks like IBM is gearing up to focus on cloud infrastructure.

    I consider IBM to be a vendor for huge enterprises but the cloud crosses all areas of the market, particularly startups and smaller companies – it’s only recently Amazon has been more enterprise focused.

    I wonder if this IBM just loading up on assets to offer services to it’s traditional enterprise base or will it really start competing with the likes of Amazon and Google for their much wider customer base outside enterprise, too.

    • David, I think IBM is competing with AWS and Google already. SoftLayer was the largest privately run cloud company before IBM purchased them last year and since then they have already grown their customers by around 10%.

      When IBM reported earnings a few days ago they said that their cloud business brought in $4.4 billion for 2013 and it had grown I think 70% last quarter. I think they said roughly half of the $4.4 was from SaaS. Don’t forget IBM is right up there with Microsoft, Oracle and SAP in terms of enterprise software businesses.

      IBM is going to be doubling (40 in total) their SoftLayer data centers in 2015. I’d say IBM is dead serious about taking on AWS.