IBM Prepares to Deliver Consumption Based, As-a-Service Offerings | Gaining Altitude in the Cloud

Posted On March 12, 2014

IBM in late February launched BlueMix, a billion-dollar investment in a Platform-as-a-Service (PaaS) cloud based on its recent empire-building acquisition of SoftLayer. A TBR analyst says IBM’s as-a-service moves are changing the company’s DNA. My opinion? It’s a lot more significant than that! If Big Blue can integrate all its services in a true consumption-based model, it could set the standard for the new service model industry wide. The question is: Is this the way of the future?

The dilemma

Here’s the dilemma that faces the market and motivates IBM’s strategy. As I’ve blogged before, customers want consumption-based services. This means:

  • They only want to pay for what they use. They don’t want to pre-commit to volumes because they overpay when they do that. When they use a lot, they’re prepared to pay a lot; when they use a little, they only want to pay a little.
  • They want providers to make it easy to adopt their services. They don’t want big road maps and huge implementation schedules. Easy on, easy off is what they desire.

We see this fundamental desire for consumption-based coming across all service lines. But it leaves traditional service providers hamstrung to meet customer demands.

There are two routes to the change to consumption-based services:

  • Service delivery in a multi-tenant world — one platform and all customers use the same thing
  • Supply chain — completely integrate a consumption-based supply chain

The problem with a remedy for the dilemma

The problem is that the multi-tenant path does everything for providers but nothing for customers. Larger, sophisticated companies have different needs, but the multi-tenant platform forces customers to be the same as everyone else. Salesforce and other providers accommodate this issue with configuration vehicles, but fundamentally they have an unyielding standard. So providers must ask their customers to change their needs to meet the product’s standards rather than the product changing to meet the customer’s desires.

It’s a thing of beauty and a joy forever if a provider can get its customers to do that. But there are a very limited number of areas, and customers, where that can happen.

The alternative remedy

The alternative is to turn a provider’s entire supply chain into a consumption-based supply chain. This is the IBM strategy.

This path eliminates stranded costs. It also eliminates the problem of misaligned provider/customer interests that create a lot of friction in the market today. The traditional service model creates take-or-pay situations in which the provider has to provide the service whether or not the customer uses it — thus the misaligned interests.

That’s why what IBM is doing is so important. I’ve blogged before about how IBM’s recent acquisitions of SoftLayer, UrbanCode, Green Hat and Big Fix were the components of building a complete as-a-service stack from the bare iron up through the platform to the business process services. This fundamentally enables IBM to migrate to an end-to-end consumption-based world.

We have yet to see IBM roll this through in its fundamental pricing, but it’s still early; Big Blue has just now assembled the stack. But if it truly goes to market with the end-to-end consumption model, IBM will be able to address market needs much more completely than competitors, which are faced with the dilemma of having to take the risk on stranded costs and effectively price higher because of inefficient delivery models.

That’s what IBM has been putting in place. Is IBM leading in the way to the future in services? What do you think?

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