The International Business Machine Corp. (IBM) is betting big on the hybrid cloud and artificial intelligence. From its acquisition of software company Red Hat in 2019, to the recent acquisition of Instana, IBM seems to be putting the pieces in place for this strategy. CEO Arvind Krishna has said that the company is laser-focussed on the $1-trillion hybrid cloud opportunity, and IBM feels that with Red Hat, they have the edge. In fact, in many ways, the IBM-Red Hat deal has laid the groundwork for splitting the company into two parts. In early October, CEO Krishna said that the computing giant will spin off a unit which manages IT infrastructure and accounts, while the core of IBM will be focussing on cloud computing and artificial intelligence (A.I.).
This recent decision to split the company into two also stems from changing customer needs for application versus infrastructure services. It has been reported that the managed infrastructure services company will be called NewCo, while IBM will be a hybrid cloud and A.I. company. Hybrid cloud basically refers to a form of mixed computing, storage, and services ecosystem which relies on both, private as well as public cloud services.
While it will take about a year for the split to take effect, the result, IBM feels, will be two market leaders with focussed strategies and missions.
An integral part of IBM’s growth strategy is its collaboration with the technology ecosystem. In August, IBM committed to invest $1 billion in other companies in the cloud space, which includes third-party software providers and digital IT vendors, to grow the ecosystem of firms working on its hybrid cloud platform. Over the past six months, major system integrators including Infosys, Wipro, Tata Consultancy Services (TCS), Tech Mahindra, EY, HCL, Deloitte, and Persistent Systems have joined IBM's Hybrid Cloud ecosystem.
According to Gaurav Sharma, vice president, IBM Cloud and Cognitive Software (IBM Software Labs, Global GSI Partnerships, and IBM Cloud Paks AP), the company has had a strong partner system for decades.
In an exclusive interview with Fortune India, he talks in detail about the Red Hat acquisition, how the pandemic accelerated cloud adoption, and why enterprises need a hybrid cloud strategy, among other things. Edited excerpts:
It has been more than a year since you acquired Red Hat. How has the acquisition helped your cloud business?
I’ll start from how the client needs are changing and that has always been a catalyst for any of the decisions that have been taken—whether it is speed to market, whether it’s flexibility with its nimbleness, or whether it’s continuous innovation. The second shift that we are seeing is digital transformation fuelled by hybrid cloud and artificial intelligence. Only about 20% of the workloads had shifted onto the cloud. When IBM and Red Hat came together it created this entire space for a hybrid cloud. So, it has enabled IBM—which brings a huge customer and software base—and Red Hat, which fuels our cloud platform, to basically create a completely new hybrid cloud architecture, which creates and delivers value.
What we realised in some of our recent calculations is that hybrid cloud can give 2.5 times more value than a single cloud, whether it is in terms of digital acceleration (where we have seen the value increasing by nearly two times), or developer productivity, or infrastructure cost efficiencies, or compliance in security, or even giving the customers a strategic optionality. Also, the choice and control remain with the customers.
So, from an architecture point of view, when clients needed to accelerate their digital transformation and IBM and Red Hat coming together greatly accelerated that momentum. From a business perspective we are seeing a lot of momentum around. In fact, in the last one year, Red Hat acquired two of their largest clients.
IBM also has acquired a lot of clients, and our cloud run rate was about $24.4 billion over the last 12 months. In Q3 of 2020, cloud and data platforms grew 20%. So that has given us a huge play into the $1.2-trillion market, which IDC predicts the hybrid cloud market would be.
Digital transformation has accelerated during the pandemic and giving customers the choice and control has made us a one-of-a-kind platform. Everybody is going for new cloud architecture. We are going from workloads that can run on premises, on private cloud, on public cloud and when I mean public cloud, it can be any multi cloud itself.
We have a strong focus on the developer ecosystem. To win the architectural battle, we’ll have to win the hearts and minds of the developers as well, where developers can discover, try, play, adopt, and recommend to the decision makers. We have an established framework to engage with the developers; it consists of three parts: code, content, and community.Gaurav Sharma, vice president, IBM Cloud and Cognitive Software
How has the Covid-19 pandemic affected your clients’ digital transformation journey? What are the lessons to be learnt from the pandemic and the work from home scenario that emerged?
I’ll give the answer in two parts: one generic and one an example which I came across. I think during the pandemic, consumer behaviour has shifted—it has become a little bit more cautious. But interestingly more digital. The client needs are obviously the same, which are: the speed to market, flexibility, innovation etc. But if I categorise it into parts, it would be mitigating risks, optimising costs, and digital transformation around hybrid cloud and A.I. Even in optimising costs it is pretty much cloud and A.I., which we have seen increase. And obviously, digital transformation which tries to give a little bit more financial flexibility and lower operating costs. In the long term, I think digital acceleration will not only continue, but it will also accelerate.
On the second part, I’ll take you through an example of a financial institution in India which has a large data centre where more than 300 people used to work, which was secured and firewalled, to make sure that nobody could take out any confidential data. But when the pandemic happened, they got permission for only 5%-10% of the staff to go to the data centre. What they needed fast were virtual desktops which could have secure access.
Within the first week, we got engaged in terms of defining the topology, the governance, etc., we strengthened the security of the cloud, there were additional policies included, etc. We extended their physical IT inside our cloud. And that was the beauty. Within two-three weeks almost all the employees were able to access things on the cloud in a very secure way, and with the right governance structures around it. For that, we obviously increased the capacity of the cloud, we had to do a lot of optimisation and a lot of automation to make sure that dynamically you can change policies, and we typically saw about nearly three times increase of our cloud itself.
The learning is that every enterprise should seriously think of having a very strong hybrid cloud strategy because enterprises would be having some mission critical workloads on premises, some on the private cloud, some on the public cloud, and different workloads running on different clouds itself so the learning which is coming from the client side itself for us and for everybody is to have a robust multi-cloud strategy which makes sure that not only your work keeps on running, but is highly optimised, automated, and can infuse A.I. into your workloads, as much as possible.
The work from home scenario has led to the necessity of moving mission-critical workloads to the cloud. Did this lead to augmentation of capacity? How did your cloud infrastructure deal with the increased workload?
Yes, we saw a tremendous increase in the cloud consumption models. A lot of times we were almost running at 80%-90% capacity. And then you need to augment the capacity in an auto-scaling way with the right automation and new policies. It also needs to be done with the kind of workloads which are landing—like I said, we are seeing more mission-critical workloads. That's where you need a high degree of security and that’s where our cloud is a great differentiator. For example, the confidence of the customers was high on the open and secure cloud that we provide. And in terms of scaling, yes, we were able to scale very quickly and we have seen the consumption go up at least two-three times, across all our clouds.
What is IBM’s relationship with global system integrators (GSIs) in India?
IBM has a strong partner system existing for decades. What we have done now is further strengthened this, especially since there is a robust platform play, either an architectural one or a technology one. It’s easier to scale that platform when we leverage through an ecosystem. An ecosystem is about maintaining the flow of energy. We have been used to working closely with the top GSIs, especially Indian and global GSIs. What we have realised is that collaboration with the ecosystem will be the key to give value to our clients. Essentially, we believe that the value we drive for our clients and for our partners would drive value for IBM. In terms of GSIs, we work with them at various levels, whether it is in terms of go-to market (GTM) plays, through technical expertise we provide, with engagement funds or partner GTMs.
It is a very thriving partner ecosystem which was there, which has now been augmented. We made an announcement earlier this year about committing a $1-billion investment into our hybrid cloud ecosystem to provide an accelerated and more agile way to co-create best-in-class GTM plays, creating partner playbooks, building pipeline with joint solutions, and demand generation, and very importantly access to our technical experts. We have a lab, which is based out of India, which is known as the Global System Integrators Lab. It consists of very senior architects, product specialists, consultants, and business development executives who create joint solutions, fulfill the GSIs’ centre of competency, and drives thought leadership along with the GSIs. And this is a perfectly firewalled kind of lab which means if a certain number of people are working with one GSI, another set of people would be working with the other GSI.
The second part is the technical expertise, where we utilise a lot of our developer advocates, both locally and globally, so we have a very thriving developer advocacy group and interestingly both the GSI Lab and the developer advocates group sit within the software labs itself so you can imagine that we are extremely close to the product development teams.
For example, TCS has set up the enterprise cloud architecture unit with technical people from both the companies, and they’ve developed two interesting solutions. One is known as ‘AiR (AI Repository)’, which will accelerate AI adoption; and to help customers simplify and rapidly modernise their integration platform with state-of-the-art accelerators and tools, TCS has developed a ‘Jumpstart Kit for Integration’.
Infosys was the first to join the ecosystem, and we have been working on the transformation and modernisation play by tapping into all the IBM Cloud capabilities. With Wipro, we launched the Wipro IBM Novus Lounge. It’s an innovation centre and we have already started joint solutions.
So, we have a strong focus on the developer ecosystem. To win the architectural battle, we’ll have to win the hearts and minds of the developers as well, where developers can discover, try, play, adopt, and recommend to the decision makers. We have an established framework to engage with the developers; it consists of three parts: code, content, and community.