IBM Exec Makes His Firm's Cloud Case as Amazon, Microsoft and Google Take Share

As the 2018 edition of research firm Gartner's widely read cloud infrastructure (IaaS) report drives home, Amazon.com (AMZN) , Microsoft (MSFT) and (to a lesser extent) Alphabet/Google (GOOGL) have gained quite a lot of public cloud share with the help of their infrastructure scale, significant R&D investments and large and growing ecosystems.

That makes things challenging for IBM (IBM) , one of the three other companies mentioned in Gartner's report, as well as various other public cloud rivals. In a talk with TheStreet, Jason McGee, the CTO of IBM's Cloud Platform unit, outlined what his firm is doing to stand out in this hotly competitive and fast-growing market, as well as where it's directing its resources going forward.

How Gartner Sees Things

As it does with leading companies in other markets, Gartner places major IaaS providers within one of four "quadrants" on a graph, based on the completeness of their product vision and their ability to execute: Leaders, Challengers, Visionaries and Niche Players. Notably, whereas Gartner's 2017 report placed fourteen companies in one of these quadrants, its 2018 report only does so for six companies: Amazon, Microsoft, Google, IBM, Oracle (ORCL) and Alibaba (BABA) .

Just like in 2017, Amazon Web Services (AWS) and Microsoft Azure are placed deep inside the Leaders quadrant, with AWS (the 800-pound gorilla of the IaaS market) placed a little further inside. However, Google, which was in the Visionaries quadrant last year, managed to (barely) squeak into the Leaders quadrant. And IBM, Oracle and Alibaba were all moved from the Visionaries quadrant to the Niche Players quadrant.

Gartner describes IaaS Niche Players as firms that "may be excellent providers for the use cases in which they specialize, but do not serve a broad range of use cases well or have a broadly ambitious roadmap." Leaders, by contrast, are firms declared to have platforms "suitable for strategic adoption" and able to serve many use cases, even if they don't excel at all of them.

In the case of IBM, Gartner praised Big Blue's ability to help mainframe clients migrate to the cloud and its strong geographic reach. It also suggested IBM could be a good option for certain types of deployments involving bare-metal servers that are dedicated to individual clients and feature no virtualization software (AWS only unveiled its first bare-metal offerings last fall).

However, Gartner also called IBM's cloud experience "disjointed," with some key services lacking consistent programming interfaces (APIs) and/or only available in a limited number of regions. In addition, Gartner noted IBM is still in the process of migrating to its next-gen NGI cloud platform.

How IBM Sees Things

"We have a pretty holistic view of cloud," said McGee when asked about Gartner's remarks on IBM's mainframe strengths. Like Microsoft, IBM asserts it's a good fit for companies that want to build hybrid clouds that tightly integrate their traditional infrastructures with public cloud resources. He cited American Airlines (AAL) as an example of a mainframe client that's also now using IBM's IaaS and cloud app platform (PaaS) offerings.

With regards to IBM's cloud ecosystem efforts, McGee highlighted partnerships with the likes of Linux/open-source giant Red Hat (RHT) , leading app performance monitoring (APM) software firm New Relic (NEWR) and cloud collaboration/file-sharing firm Box (BOX) . New Relic, he noted, is relying on IBM's cloud to expand into Europe (echoes of how Salesforce.com is leaning on AWS for international expansion).

With many enterprises relying on multiple public clouds, I asked about what IBM's sales pitch would be to a company that was already making heavy use of AWS or Azure, but thinking about also using IBM. He replied by mentioning several fields where he felt IBM had differentiated offerings, including bare-metal servers, security features, blockchain solutions for developers and access to IBM's various Watson AI/machine learning services.

"I think there are unique capabilities around blockchain and Watson and infrastructure," McGee said, while also reiterating hybrid cloud support is an IBM strength.

On the subject of what types of cloud offerings IBM is looking to add going forward, McGee said the efforts generally fall under one of three "top-levels scenarios": Solutions that help companies migrate existing workloads to the cloud, modernize their existing workloads or create brand-new "cloud-native" apps. He sounded particularly enthusiastic about IBM's ability to assist modernization efforts, arguing the company has "a tremendous installed base of enterprise applications" that it can provide a path to modernization for.

The Big Picture

Between a giant enterprise client base, a global footprint and some differentiated services, IBM probably has enough going for it to remain a notable cloud player going forward. Likewise, a company like Oracle might be able to leverage its enterprise base and cloud database offerings to maintain a meaningful presence. And Alibaba should continue seeing rapid growth thanks to its leading position in China (it has a limited presence elsewhere).

But the public cloud is a battleground where size yields some major long-term competitive advantages for the top three players. The huge server footprints of the leaders help create economies of scale; their large revenue bases help finance big R&D investments that let them roll out new services at a dizzying pace; and their large cloud customer bases help them form massive ecosystems of app developers and IT service providers (one could spend all day browsing Amazon's massive AWS Marketplace).

For all these reasons, it's quite likely that Amazon, Microsoft, and Google, all of whom have reported seeing very strong cloud revenue growth, will take more public cloud share in the years to come. And that this market, which has already seen the likes of HP Enterprise (HPE) , Verizon (VZ) and VMware (VMW) driven out, will see plenty of additional consolidation.

Amazon, Microsoft and Alphabet are holdings in Jim Cramer's Action Alerts PLUS member club.