may have been behind its competitors in offering cloud-computing services, but the Armonk, N.Y.-based services giant is making a major push to convince some of its equally slow-moving customers just how beneficial the cloud is to their businesses.
On Thursday, for example, IBM announced it has signed a deal with hotel chain Marriott (MAR – Get Report) to bring IBM’s hybrid-cloud, which is a combination of both public and private clouds, to bring faster services to the hotel chains’ guests, as well as learn more data about Marriott’s guests, in an effort to maximize revenue.
As part of the deal, Marriott will start to use IBM’s SoftLayer infrastructure-as-a-service (IaaS), which would allow for minimal on-site support and upgrades, because much of the work would be done in the cloud. It would also allow Marriott’s guests to use the hotel’s new capabilities faster due to less overhead. IBM will also provide other services and analytics software-as-a-service as part of the deal.
Terms of the deal were not disclosed, but sources, speaking on the condition of anonymity, noted the deal was similar in size to previous IBM deals, which have been thought to be around $100 million in revenue over the life of the deal.
Sources also noted that Marriott, which has more than 4,000 locations around the world, would be replacing 80% of the company’s traditional information-technology structure as part of the deal.
Companies that have traditionally relied on boxed software and the typical IT infrastructure have been slow to adapt to customers’ needs as social media, mobile devices and security have become more important. IBM, which stated that cloud revenue rose 60% yea-over-year in 2014, is competing with Amazon (AMZN – Get Report) , Google (GOOG) , Microsoft (MSFT) and others for these kinds of contracts, even if the benefits aren’t immediately seen.
Credit Suisse analyst Kulbinder Garcha stated that even though revenue from cloud may be strong, it may actually hurt in other areas. “We believe the shift to the Cloud maybe ultimately be margin dilutive for IBM even if it drives revenue for the company,” Garcha wrote in a research note following IBM’s earnings report last month.
Robert LeBlanc, senior vice president of IBM’s newly formed Cloud unit is in charge of increasing IBM’s cloud-based revenue and helping IBM’s customers anticipate what they prefer and need before they realize they need it.
“The strategy is playing out well in enterprise,” LeBlanc said. “They worry about where apps are running, data locality, integration, hybrid clouds and openness (shared apps and data).”
Though there are concerns that cloud computing where revenue is recognized over the life of the contract and expenses are recognized immediately is deflationary, LeBlanc said it should help IBM’s profitability, which has been a concern for investors.
“It [cloud] will help the IBM company for sure,” LeBlanc said. “IT has always been a deflationary environment, and we’re working on getting the cost structure down with automation. As we move up the chain, the margins are much better.”