The Battle For The Cloud Rages On

The battle for the government cloud between IBM and Amazon Web Services have seen some big victories in the past month, with each side scoring major government customers to use their cloud services. The net effect is that neither company is showing real dominance in the government cloud sector … but cloud computing itself is very much coming along.

Earlier this month Amazon Web Services won its huge two-year $600 million cloud services contract with the Central Intelligence Agency. Or, rather, re-won, since as soon as the contract had been awarded to AWS, bid competitor IBM threw a temper tantrum and demanded the General Accounting Office review the bids and ensure that it, not AWS, was the most worthy for the CIA’s cloud business.

For now, it seems, holding its breath until its corporate face turned, er, blue, didn’t work for IBM—after the GAO protest was made, Amazon immediately went to the U.S. Court of Federal Claims to resolve the dispute. AWS’s original contact was restored on Oct. 8 by the court, though IBM has vowed to appeal.

But IBM isn’t exactly limping away, either. Big Blue just announced it scored a five-year $30 million deal to provide cloud computing to the General Services Administration. As many—especially AWS—would point out, this is no CIA deal, but it does demonstrate that IBM is not going to let the government cloud sector get away from it.

IBM’s recent $2 billion acquisition of SoftLayer, a cloud infrastructure vendor, is a clear demonstration of just how much IBM wants cloud business from government and enterprise customers. IBM’s PR machine has been particularly aggressive about using SoftLayer to beat AWS over the head, drilling the message that IBM and SoftLayer can provide more robust services than AWS.

Expect more of the same from IBM in the near future: getting the message across that it’s a viable cloud provider is critical to fulfilling it’s recent promise that it would generate $7 billion in annual cloud revenue by the time 2015 rolls around.

Promises, Promises

IBM’s biggest problem is that cloud computing, particularly the kind of public cloud computing offered by AWS, is negating the need for all but its largest customers to buy hardware for use in in-house data centers. Cloud infrastructure is (for the most part) still a less expensive option, especially when you consider that public cloud means less staff overhead, because you don’t need as many IT employees.

Little wonder, then, that IBM freaked out when the CIA, which very much fits in the category of large customer, went with AWS instead. If IBM can’t count on the low-hanging fruit that mega-enterprise operations can offer, then it is in a pickle, indeed.

To adjust, IBM will have to become more like AWS: less interested in generating revenue through hardware and professional services like cloud integration and more interested in pulling in monthly subscription revenue.

That will be a very difficult jump for IBM, and they probably already know it. After all, they just spent $2 billion for a company that does know how to pull it off. SoftLayer may be the draft horse that pulls IBM out of the mud in which it’s stuck.

The winner in all of this competition is, as usual, going to be the customer. This war is being fought across every sector of IT and while AWS is still very dominant in cloud computing, it cannot afford to ignore IBM or other competitors like Windows Azure and Rackspace for much longer. Pricing, services and support could all get enhancements as each party in the cloud war takes its shots at knocking AWS off the top of the cloud computing hill.