IBM and SAP: A Cloud Pact That Solves Problems and Holds Promise

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Lance Crosby, chief executive of IBM’s SoftLayer cloud unit. IBM is spending $1.2 billion more to create 40 cloud data centers in 15 countries.Credit Feature Photo Service

The cloud business presents a paradox. For customers, the cloud offers flexibility and lower costs. For suppliers, the ante is just the opposite — high fixed costs.

In an interview last month, Lance Crosby, chief executive of IBM’s SoftLayer cloud unit, observed that he spent hundreds of millions of dollars a month on data center servers and equipment. “It’s not for the meek,” Mr. Crosby said.

IBM was tardy to the cloud market, trailing Amazon and others. But it is investing heavily. It bought Mr. Crosby’s company last year for $2 billion, and is spending $1.2 billion more to create 40 cloud data centers in 15 countries.

IBM announced a cloud partnership on Tuesday with SAP, the German software giant, that may help justify some of that investment. The pact also suggests that the demand from mainstream corporate customers for cloud-delivered software is accelerating.

The partnership covers SAP’s cloud offering tuned for high-speed data analysis, SAP HANA Enterprise Cloud. SAP announced its cloud offering last year, but declined to say how many customers it has. But companies increasingly want the option of a cloud version of the software maker’s bread-and-butter suite of business applications for the automated management of operations. SAP recently surveyed its customers and found that 50 percent of them wanted to move some or all of its business applications to the cloud. Earlier concerns about the reliability of cloud-based software and having sensitive corporate data reside outside the company walls are receding.

“The customers are ready now,” said Kevin Ichhpurani, senior vice president for business development at SAP. “And with this partnership with IBM, we get scale instantaneously and global reach.”

The IBM deal also removes a hurdle for SAP in the cloud business — the need to build data centers, at great cost. “It’s capital intensive and it’s not where SAP’s expertise lies,” said Holger Mueller, an analyst at Constellation Research.

IBM, Mr. Mueller noted, has a very different challenge. In its eagerness to gain ground, the company’s cloud spending spree has an element of “build it and they will come.” Having SAP, a leader in business software, come over to the IBM cloud platform is a notable win.

“SAP brings apps to the table,” Mr. Mueller said. “It will help make the IBM investment pay for itself.”

SAP, to be sure, could have chosen other cloud partners — notably Amazon, Microsoft or Google. Mr. Ichhpurani declined to discuss others in the running, but he did enumerate IBM’s strengths, including its long experience with corporate customers and expertise in computer security and disaster recovery.

Unlike some other vendors, IBM offers cloud computing either on shared software or as machines dedicated to a single company, so-called bare-metal cloud. And, Mr. Ichhpurani said, having data centers distributed around the globe, as IBM does, is an advantage with corporate customers that do not want their business and customer information residing outside their home countries.

Erich Clementi, a senior vice president in IBM’s services business, said, “IBM could tick off all the boxes in a way our nonenterprise competitors could not.”

Analysts shared his assessment of the competition. “SAP looked around and concluded that IBM had the most mature enterprise cloud technology,” said Charles King, an analyst at Pund-IT Research.