IBM, a 109 year old tech veteran, has revealed its decision to split into two companies in order to properly focus on its hybrid cloud and AI ventures. Cloud computing has recently become a buzzword as the industry has seen exponential growth in recent years. Gartner forecasts that the global cloud computing market will grow by 6% in 2020 to a total of $257.9 billion.

What is cloud computing?

Cloud computing essentially offers services such as storage, processing power, servers, analytics, intelligence, databases, and more, over the internet. It takes away the aspect of needing to be in the vicinity of computer hardware to access certain services, and instead allows for accelerated innovation and readily available resources. 

In this way, firms can rent cloud infrastructure and pay for exactly what they need instead of financing the costs of creating and constantly updating their own IT infrastructure. These services need consistent maintenance due to how software can go obsolete as technology rapidly improves. Companies that specialise in offering these services are responsible for these updates as it would create unnecessary expenditure for small businesses to hire a skilled workforce to take this function on – in supplement to what they already produce. IT trends indicate a “growing reliance on external sources of infrastructure, application, management and security services.” It is predicted that 50% of global enterprises currently availing of cloud services will have fully integrated this service into their business models by 2021. Suppliers of cloud computing services and their B2B model reap the benefits of large economies of scale by providing their services to multiple firms and customers.

The catalyst to IBM’s restructuring decision

IBM’s strategic acquisition of Red Hat for $34 billion in July 2019 was the most important step in the organisation’s move today to reinvent itself. Red Hat, a provider of open hybrid cloud technologies, along with IBM’s industry expertise and sales leadership work together to offer a “next-generation hybrid multi-cloud platform”.

Hybrid cloud amalgamates public cloud, used to control various databases, and private cloud, used to safeguard confidential data, to provide all the benefits of cloud computing in the most secure manner. IBM identified and seized the market opportunity of businesses increasingly transitioning their operation to the cloud as they aim to reduce costs, innovate with agility, and grow efficiently by using only essential resources. Red Hat’s leading hybrid cloud technology in partnership with IBM will allow this innovation to reach a wider audience. 

IBM and NewCo

Presently, IBM’s Managed Infrastructure Services unit will now be transferred in 2021 to a new public company that is temporarily named NewCo. This will allow IBM to “laser focus on the $1 trillion hybrid cloud opportunity.”  IBM’s Executive Chairman, Ginni Rometty, believes “IBM will accelerate clients’ digital transformation journeys, and NewCo will accelerate clients’ infrastructure modernisation efforts. This focus will result in greater value, increased innovation, and faster execution for our clients.” NewCo will not only encompass IBM’s traditional services, but it will also include “testing, assembly, product engineering and lab services,” to modernise digital transformation. In addition, NewCo will focus on a $500 billion market opportunity to manage client-owned infrastructure. 

IBM will act on the growth of their clients’ needs for the hybrid cloud platform and AI capabilities. Their approach, founded on Red Hat’s OpenShift, “will drive up to 2.5 times more value for clients than a public cloud only solution.” Analysts believe this will allow IBM to invest into growing and more profitable business areas. The distinct companies will undoubtedly allow increased value for their different customers and shareholders. This proves how cloud computing has become a significant buzzword in the technology industry.