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IBM Makes a New Play for Google's Business

Stocks in this article: IBM GOOG MLNX NVDA ARMH INTC FB NFLX

NEW YORK ( TheStreet) -- For the last decade, server companies such as IBM (IBM - Get Report) have been watching helplessly as Google (GOOG) has changed the rules of their game.

Instead of buying high-end servers, Google bought the cheapest hardware it could find, integrated it and created vast clouds of capacity that can do more for less money than any computer system ever could before.

With these public clouds taking an ever-greater share of the general computing market, IBM is facing a declining share of a declining market, according to the Gartner Group. The company hopes a new, open-development process will fuel a comeback.

It's called the OpenPOWER Consortium , named for the IBM Unix server system it supports. The consortium includes Mellanox (MLNX), a networking server chip outfit, Nvidia (NVDA), a graphics chip company, and Tyan, a unit of Taiwan's MiTAC that has had some success in serving these cloud markets.

Another company it includes is Google. Google is the key.

According to Bradley McCredie, a vice president with IBM's systems and technology group and one of about 70 "fellows" who represent the company's technology elite, cloud providers are slowly moving beyond commodity boards. They are innovating at the board level, and looking for chip-level innovation to keep the power coming.

This is the kind of innovation OpenPOWER plans to provide.

Cloud data centers "started buying off the shelf, then they started building their own. Companies like Tyan are an example of that. They provide cards and boards to Web 2.0 data centers. That will continue to move into the chip level," and OpenPOWER is designed to support that.

While some compare the result to what ARM Holdings (ARMN) does, shipping designs to device makers who customize and then order chips, McCredie said this is more complementary to things like Facebook's (FB) OpenCompute project and Netflix' (NFLX) OpenConnect.

McCredie said the partners will spend this year building out their alliance, creating a governance structure. Some aspects of the resulting technology will be open source, like the KVM hypervisor, while others will be licensed under Fair, Reasonable and Non-Discriminatory terms.

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