IBM Clouding the Midmarket

IBM plans to market its cloud service most heavily to small and midsized organizations

Small and midsized organizations will deploy cloud services more readily than their larger counterparts, predicted the IBM general manager for midmarket sales at a company event Tuesday. As a result, IBM is aggressively pursuing this market, namely by helping partners market the company's PaaS (Platform-as-a-Service) to these potential customers.

"The cloud is taking off in this space faster than with larger enterprises," said Andy Monshaw, general manager, IBM global midmarket operations, speaking at an IBM small business summit at the company's New York office. "With the cloud, these clients are looking to grab as much new capability as fast as possible."

Last week, IBM started offering the ability for integrators and other IBM partners to resell IBM's SmartCloud services under their own nameplates. The move fits into IBM's larger plan to market its services for the midmarket exclusively through partners, who, Monshaw said, better understand the needs of their individual customers than IBM itself could.

The midmarket is "very different" from the market for large enterprises, Monshaw said. He defined midmarket as organizations with 1,000 employees or fewer. The average annual IT budget is about US$130,000 and the IT staff can number around 15 employees or so. Collectively, these organizations, by IBM's estimates, generate $214 billion a year in IT business.

Because these smaller organizations have fewer operating costs, and tend to be growing more quickly than their larger counterparts, they see cloud services as a lower-cost alternative, and sometimes the only choice, for expanding their services, Monshaw said. They also tend not to have large IT staffs who can "self-integrate" systems.

In years past, an innovative startup company may have invested in servers; these days this is rarely the case, agreed Mike Grandinetti, a managing director of venture capital firm Southboro Capital, who also spoke at the gathering. Instead, they look to cobble together systems using cloud services and freely available open-source software.

"The velocity by which these businesses accelerate is mind-boggling. Companies that may, in the past, have taken three years to get a million users are now getting there in three months," he said.

Another factor that has helped midsized organizations become more trusting of the cloud is the fact that they have probably already used consumer-based cloud services, such as Amazon's ECC (Elastic Cloud Compute) service, Monshaw said. Although IBM's cloud service may be more expensive than Amazon's, potential customers may find IBM's services more appealing insofar that they are designed to be more secure and reliable, Monshaw said.

Two years ago, IBM shifted its strategy of serving the midmarket space. No longer would IBM try to sell its services directly. Rather, it started working exclusively with partners. Partners know their specific markets far better than IBM could, Monshaw admitted. Today's smaller businesses tend to address specific niches of some industry, and require domain-specific specialized skillsets to serve. "Our clients buy through local trusted business partners, and they buy an application experience. Very rarely will you hear someone say, 'I wanted my application to run on an IBM x86 server only,'" he said.

At the summit, IBM presented two businesses that have done business with IBM and its partners, and are now interested in moving some of their operations to the cloud.

One is Cherry Central, a Traverse City, Michigan-based cooperative that sells fruits and vegetables on behalf of farmers. The company contracted with IBM business partner N2N to deploy a food-safety monitoring program, which N2N built on IBM's DB2 Web Query running on an IBM Power System. At the summit, Steve Eiseler, Cherry Central vice president of operations, noted that the company, with only two IT staff, will probably move to a cloud-based service over time. The use of the cloud by most small businesses "is inevitable," he said.

Another customer who spoke was Ken LaVan, a partner of the Fort Lauderdale, Florida, law offices of LaVan & Neidenberg, which specializes in filing medical claims on behalf of U.S. military veterans. The firm worked with IBM partner Group Business Software to develop a wizard-style application, based on Lotus Notes, that could speed the intake process. Using its new application, the firm was able to speed its file claims process by 66 percent. If cloud services were available when this app was first created, then it would have been cloud-based, LaVan said.

IBM's moves to provide cloud computing to smaller businesses is unique, when compared to the cloud strategies of other big system providers such as Hewlett-Packard, said Gary Barnett, an IT analyst from Bathwick Group who attended the summit. Most of these system providers are not willing to partition off small portions of the cloud, such as a virtual server or two. IBM's prices are pricier than consumer-based services such as Amazon's, and will need to come down some more, but the move is one in the right direction, he said.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is


Copyright © 2011 IDG Communications, Inc.

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