Clear battle lines are emerging between the various hybrid cloud market participants. For both vendors and enterprises, the stakes are high and there will be clear winners and losers in the years ahead as cloud moves from hyperbole to an operating model.

On one side, we have the hyperscale cloud providers fighting it out for market share in public cloud, but with a noticeable increase in focus on offering on-prem solutions and then we have the server vendors on the other side, bridging from their installed base of on-premises infrastructure into cloud via hybrid models using open source as well as legacy virtualization platforms as the pathway to modernized IT architecture.

Of all the discussion that is surrounding cloud, I believe the most hotly contested space is delivering solutions and services that will enable enterprises to manage, orchestrate, broker and provision cloud infrastructure. As Infrastructure-as-a-Service pricing continues its race to the bottom, cloud vendors are looking for margin and a way to carve out stickiness. This will come through layers like HCI and PaaS, but I think the hybrid cloud orchestration layer is where the smart money is focused.

One interesting company to look at in the hybrid cloud is IBM, which is clearly pivoting. Let’s explore this pivot as well as IBM’s apparent strategy, competition and what the company must do to succeed going forward.

IBM’s earnings are telling on its strategy

IBM announced Q3 earnings earlier this week (read my take here). While the picture was solid but not impressive, what stood out to me was the performance of Red Hat amongst the rest of the earnings numbers. With Red Hat being new to IBM in this Q3 earning cycle it was encouraging to see a ~20% increase in the Red Hat numbers. This quarter also saw $5 billion in cloud revenues, which is IBM’s best cloud revenue performance of the year, and IBM’s 14 percent growth in cloud revenues for Q3 was the company’s best growth in cloud in more than a year (2Q18: 18% at constant currency). 

To me, the early success in Red Hat shows market demand and acceptance of IBM’s acquisition of Red Hat as well as clarity on the company increasingly turning its attention away from trying to compete with AWS or Azure directly, but to be much more focused on delivering cloud native applications that operate freely in hybrid environment giving enterprise customers choice as to where workloads are ultimately deployed. I believe this is a sound strategy and one that will serve IBM well, and given the $34 billion-dollar investment made in Red Hat, the company has to be prudent to show growth.

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