IBM says it’s king of cloud. Amazon, I’m guessing, would beg to differ

Mushroom Cloud

Cloud reporters got a pitch from IBM the morning after Amazon’s fourth quarter earnings announcement claiming that it — not Amazon Web Services — leads the leagues in cloud since it plunked down $2 billion on SoftLayer over the summer.

As an IBM PR rep helpfully pointed out: Amazon’s full-year “other” North America revenue, which includes AWS, was $3.9 billion while IBM’s comparable number was $4.4 billion.

He wrote:

“By definition, even if EVERY penny of ‘other’ revenue was in Amazon Web Services — and it obviously isn’t — IBM sold at least $0.5 billion more in cloud than AMZ in 2014, and IBM also grew at a faster rate (69 percent for FY 2013). That’s on $4.4 billion in cloud revenue for the year with $1.7 billion in cloud/SaaS services for IBM.” (emphasis his)

To be sure, AWS is in the public cloud biz exclusively (well except for that little CIA cloud sideline), while IBM (and HP, Dell, Microsoft, Rackspace and the rest of the known IT universe) beats the private-plus-public-equals-hybrid cloud drum. So IBM is lumping together all those cloud modes — including SaaS software into its totals. That’s fair. But maybe it’s also fair to note that many SaaS applications (Workday et al.) run on AWS but they are from third-party vendors, so that revenue doesn’t flow to AWS, but that also makes AWS a very important foundational technology for third parties.

After pushing for a wee bit more clarity on what IBM’s “cloud” revenue entails, here’s the breakdown:

  • $1.7 billion from SaaS
  • $2.7 billlion from software, hardware and services.

That second one is a rather big, indeterminate bucket of stuff. Sort of like Amazon’s “other.” IBM argues, however that its bucket, at least conforms to the cloud definition put forth by the National Institute of Standards and Technology.

So cloud revenue depends on how you define cloud. And, as far as I know the SEC still wants more clarity on how IBM itself defines cloud revenue. I bet many other legacy IT players will be getting that same request.

Amazon’s Achilles heel?

One meme that Amazon doesn’t want bandied about is that AWS is great for launching startups that don’t really know what sorts of loads to expect or will see spiky demand at the get go but once they get going and have a better grasp on their resource requirements, many often consider other deployment models.

David Mytton, CEO of Server Density discussed that notion in a December Gigaom guest post. One example he cited was Moz, which moved a lot of its work (except many batch processes) from AWS to its own hardware and saw a pretty dramatic price saving. Moz estimated it would have spent $3,200 per month on AWS vs. $668 per month using its own gear — which over the course of a year would have meant $38,400 for AWS compared to $,8096 for in-house.

Last week, Xconomy reported more on Moz’ move away from AWS referencing a blog post by Moz CEO Sarah Bird who had some damning words vis-a-vis AWS.

“Over the years, we’ve spent many small fortunes at Amazon Web Services. It was killing our margins and adding to product instability. Adding insult to injury, we’ve found the service… lacking.”

Just what was lacking in those services was not spelled out, but Bird said Moz is building out its own private cloud infrastructure in Virginia, Washington and Texas.  That “big bet” meant more than $4 million in capital lease obligations. But she said the gamble is starting to pay off.

“On a cash basis, we spent $6.2 million at Amazon web Services and a mere $2.8 million on our own data centers. the business impact [of this shift] is profound. We’re spending less and have improved reliability and efficiency. … Our gross profit margin had eroded to ~64%, and as of December, it’s approaching 74%. We’re shooting for 80+% and I know we’ll get there in 2014.”

I’ve reached out for AWS for comment but I know from past history that company execs would strenuously object to the notion that growing companies could do better moving workloads elsewhere. I will update this with AWS comments. Update: Amazon had no comment for this story.

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Note: This story was updated at 11:05 a.m. February 3 to reflect that AWS had no comment on IBM’s cloud claims.

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