IBM's SoftLayer Takes Flight: Should Partners Prepare For Cloud Turbulence?

IBM channel partners say the company's July acquisition of SoftLayer puts it on the fast track to cloud success and they are eager to offset sagging hardware sales with new cloud revenue. But while partners are eager, they're also wary. Many say they feel burned by IBM's previous cloud strategy with SmartCloud Enterprise and they're wondering what turbulence awaits them as SoftLayer takes flight.

IBM fumbled its shuttering of SmartCloud Enterprise last week, according to a number of partners, and the rollout of SoftLayer over the past few months has been anything but smooth.

"SoftLayer was a brilliant acquisition. We share the hopes and aspirations of IBM and wait to hear how they are going to map this product into the larger IBM product offering," said Chris Pyle, president and CEO of Champion Solutions Group, a Boca Raton, Fla.-based solution provider and IBM partner, ranked No. 173 on CRN's Solution Provider 500 list. "IBM is going to have to communicate what its cloud strategy is with SoftLayer. What are the go-to-market plans? What are the rules of engagement for selling SoftLayer? How do we make sure IBM's sales force and partners are all on the same page?"

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IBM has nearly finished migrating SmartCloud Enterprise customers over to SoftLayer, according to the company. Armonk, N.Y.-based IBM said it will still support its SmartCloud Enterprise Plus cloud services but will eventually combine that offering with SoftLayer to create one global platform. Going forward, IBM said, SoftLayer will be the basis for its Infrastructure-as-a-Service, Software-as-a-Service and Platform-as-a-Service offerings and is the company's big bet to go head-to-head with Amazon Web Services, Windows Azure, Google Compute Engine and others in the cloud.

SoftLayer Channel Snapshot

Drew Jenkins, SoftLayer channel chief and director of worldwide channel sales for the company, said, "It's my sense that there is a lot of excitement out in the market for SoftLayer. I think the way you need to look at it is that there is a better option with SoftLayer as opposed to thinking of it as SmartCloud wasn't as good as it could have been."

According to SoftLayer, it earned $500 million in revenue in 2013 with 30 percent of sales driven through the channel. Jenkins said he hopes to grow the SoftLayer channel with new IBM partner blood but concedes, "SoftLayer has been predominantly a direct business since its inception in 2005. I can tell you with certainty that SoftLayer and partners will have much bigger opportunities, but how is the channel culture and mix is going change as we bring SoftLayer to the IBM channel? I don't know."

Jenkins said the company is courting 5,000 IBM managed service providers to adopt its cloud infrastructure services, but added that SoftLayer's channel integration with IBM's North American partner community of 36,000 is still in the early stages.

Currently, the SoftLayer partner mix consists of 900 to 1,000 partners with about two-thirds of those partners outside the U.S. SoftLayer said it has 21,000 mostly SMB customers but also counts large firms such as Yahoo’s Tumblr, Yelp and social photo-sharing site Twitpic among its clients.

But many IBM channel partners interviewed by CRN said they have been left in the dark regarding the transition from SmartCloud to SoftLayer. Others added that SoftLayer has been anything but partner-friendly in the past -- a troublesome sign for the future, they argued.

One large IBM Gold partner, who ranks in the top 100 of CRN's Solution Provider 500 list, said when he approached SoftLayer to forge a partnership the company first asked for a credit card to bill services to instead of offering an olive branch and beginning a meaningful discussion. "I laughed and politely said goodbye," said the partner, who asked not to be identified. "That’s the opposite of channel-friendly."

NEXT: IBM's Big Bet On The Cloud

IBM's Big Bet On The Cloud

IBM sees big opportunity in delivering cloud services to the enterprise and the SMB market as it weans unprofitable hardware business off its books. Last month, IBM agreed to sell its low-end x86 server line to Lenovo, a business that has posted seven consecutive quarters of losses as clients move to the cloud.

Also in January, IBM revealed a $1.2 billion cloud expansion effort to build up to 15 data centers on five continents to grow its SoftLayer cloud services and reach new clients and markets. Those are just the biggest deals. Over the past year IBM has made nearly a dozen smaller cloud acquisitions and forged partnerships with cloud companies as it fortifies its cloud portfolio.

IBM's cloud moves are easy to understand. Fewer midmarket and enterprise IT companies are buying hardware, opting instead to replace traditional servers with a cloud services. Cloud spending is a market research firm IDC estimates will grow 25 percent in 2014, to $100 billion.

Ginni Rometty, IBM chairman, president and CEO, has said publicly she expects IBM to do $7 billion in cloud revenue by 2015. In its most recent reporting period, IBM's cloud revenue rose 69 percent to $4.4 billion, with the bulk directly generated from cloud services and the remainder from software and services supporting the cloud.

IBM declined to break out what percentage of its cloud business goes through the channel.

SmartCloud Missteps Weaken Partner Trust

Meanwhile, some IBM partners that have been in lockstep with IBM's cloud rollout say the company's missteps have cost them.

"We worked closely with IBM's SmartCloud group and talked to customers and tried to get them interested. We couldn’t compete with Amazon or Azure. SmartCloud was expensive, high-touch, and heavy on the service model. Amazon's model was the exact opposite," said one IBM partner who asked not to be identified.

Analysts who track the cloud computing industry have given SmartCloud Enterprise bad reviews. Gartner placed IBM's SmartCloud IaaS offering at the bottom of the heap out of more than a dozen companies as part of its Magic Quadrant report. Gartner noted that SmartCloud Enterprise had weak security capabilities that made it difficult for customers to meet regulatory compliance issues, that its service-level agreement did not cover basic provisions such as when the service was unavailable for maintenance, and overall features lagged "significantly behind" its competitors.

Some partners told CRN IBM's switch from SmartCloud to SoftLayer left them with mud on their face. That's because thousands of companies paid to migrate their systems to IBM's SmartCloud only to find it was all for naught, said Alan Arnold, executive vice president and CTO with Vision Solutions, a provider of cloud replication and recovery services that was contracted by IBM to move many companies to the SmartCloud platform. "Now they're being told they have to move again. There is a big amount of frustration out there."

In an attempt to mollify irked partners, IBM gave SmartCloud Enterprise customers free access to Racemi software, which specializes in migrations across disparate platforms. But, Arnold pointed out, migration software is only one part of a headache that includes partitioning, configuring and explaining to a CTO why a second migration is needed so soon. "How do you tell a board of directors or your management team that it's going to need to prepare for another disruption in business?" Arnold said.

"We found it to be a very smooth transition in most cases," said Dennis Quan, vice president of IBM Cloud Infrastructure Services. "With every transition to SoftLayer there are a certain number of things that need to be worked through. But customer feedback has been very positive with many reporting back increased scale, performance and reliability compared to what they had before."

NEXT: SoftLayer And SmartCloud: A Study In Contrasts

SoftLayer And SmartCloud: A Study In Contrasts

There is no argument that SoftLayer ups IBM's cloud game. IBM partners told CRN that SmartCloud Enterprise operated like an IBM relic that was high-touch, high-cost, and couldn't compete with the nimbler and more affordable Amazon Web Services.

SoftLayer's automation platform, on the other hand, enables businesses to marry speed and simplicity and attracts the kind of young companies IBM wants -- game makers, Database-as-a-Service companies and born-in-the cloud app makers.

"IBM needs to be high-speed, low-drag. That's what the market wants. SmartCloud just didn't deliver on that front. But before I get too excited about SoftLayer, partners need to know where IBM is headed with the platform. We want to add value but don't want to get burned down the road when SoftLayer rolls out similar services," said Champion Solutions' Pyle.

Pyle and other partners say the IBM's SoftLayer puzzle is coming together, but they still feel like they are missing a majority of the pieces.

One IBM partner, who did not want to be named, said IBM was in the midst of revamping its channel program to absorb SoftLayer and deal with other shifting channel dynamics such as the sale of its x86 server business.

Midmarket IBM partner Tom Hughes, director of alliances for Technology Solutions Group of Ciber, a Greenwood Village, Colo.-based IBM partner, said IBM's cloud investment will have an uncertain impact on his business. "It all depends on how closely SoftLayer and these data centers fit into IBM's current cloud offerings. As an IBM partner I haven't yet seen the benefits of the SoftLayer acquisition. I'm going to have to reserve judgment until IBM does a better job in communicating what those benefits will be," he said.

For its part, SoftLayer has been given room to run within IBM and operate almost as a separate company. For nearly two years the division will function autonomously before being fully integrated into IBM, said Lance Crosby, CEO of SoftLayer.

Lance said IBM will be launching more than 100 products in 2014 including e-commerce and marketing tools along with dozens of infrastructure services such as its supercomputer Watson’s big data platform that will run on SoftLayer’s cloud.

Bill Gleich, president of Jeskell Systems, a Laurel, Md.-based IBM partner, saidSoftLayer brings IBM real ammunition against Amazon Web Services. "IBM is known for its enterprise-grade reliability, security and enterprise services. SoftLayer is renowned for its ease of doing business and top-notch automation platform. Bringing the two together will allow us to deliver web-scale solutions with enterprise touch," he said.

As for the IBM partner opportunity with SmartCloud? "The cloud spend in government is expected to grow double digits this year. I'd like to capture my share of that spend," Gleich said.

PUBLISHED FEB. 10, 2014