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How IBM's Challenging Amazon In the Cloud

Stocks in this article: IBM AMZN

NEW YORK (The Street) -- IBM (IBM) on Friday unveiled a $1.2 billion global cloud investment that will see to the launch of 15 new datacenters integrated with 13 SoftLayer and 12 existing IBM centers, totaling 40 datacenters.

"Obviously from a dollar perspective, this is a huge commitment," said Lance Crosby, the CEO of SoftLayer, the foundation of IBM's cloud computing expansion that Big Blue acquired last summer. Crosby spoke with TheStreet Thursday.

"This is a $1.2 billion investment in cloud," he said. "We're obviously telling the world that IBM is dedicated to the cloud going forward. And by being one of the only players that's going to have a global footprint and the only player with a global backbone, we believe we're going to have a distinct, competitive advantage across all enterprises and governments worldwide."

Crosby said that every one of the datacenters will have four isolated zones inside, and each zone will have 4,000 physical boxes, tallying to 16,000 to 20,000 physical servers per zone, worldwide. Crosby explained that IBM-SoftLayer had determined that the best way it could help clients cope, head-on, with the increasingly complex regulatory and data privacy laws of various countries was to bring the cloud as close as possible to the end user.

IBM has taken the exact opposite approach to expanding its global datacenter footprint from competitors. The typical approach among peers has been to build four or five sites globally to service the entire world. Crosby says IBM, instead, has gone for massive scalability and distribution, and is achieving this by building smaller, but many more datacenters around the world. The company is working to build out multiple sites in every continent, with an active passive or active failover-type scenario; and within them, in countries that can support $50 million to $100 million in cloud services.

"We're the only cloud provider out there that has this massively scalable and distributed datacenter strategy," says Crosby.

In 2014, all of SoftLayer's services will be pushed into the 15 new IBM datacenters. Part of the capital expansion will also interconnect existing IBM cloud facilities and transition SaaS (Software-as-a-Service) and PaaS (Platform-as-a-Service) properties onto the SoftLayer backbone, making the key facets of all of SoftLayer's services available at all datacenters. Purchasing customers soon will be able to pick and choose among the locations and services they want.

The datacenter launches will begin in the first half of 2014, starting with Sydney, Hong Kong, London, Toronto, and Mexico City. In North America, sites will be added in Ashton, West Virginia, and Dallas, Texas, dedicated specifically to government work. Overall, IBM plans to deliver cloud services to five continents and 13 countries.

Frank Gens, senior vice president and chief analyst at IDC says that the $1.2 billion investment shows that IBM is putting its money where its mouth is. The cloud is growing at about five times the rate of overall IT spending, or about 25% a year, and by ramping up the portion of its business where all the high growth is, IBM has found itself in a very strong position.

"The cloud is the antidote to IBM's slow revenue growth," Gens said.

Gens wasn't always persuaded of IBM's commitment to the cloud. Though IBM had been increasing its focus on the cloud over the last couple of years, Gens and his team of analysts felt that the company still needed to do more, and to do it faster. One of the key parts of what Gens and his team was looking for in IBM was a build-out of economically competitive cloud infrastructure on a global scale; a cloud service platform that could compete with giants such as Amazon (AMZN).

But now, with this announcement, combined with the $1 billion plus Watson Group announcement last week, and following the SoftLayer buyout, Gens has become highly optimistic that IBM is ready to compete in the cloud on a global scale. "The announcement really says that IBM really is moving with cloud speed to scale up its ability to compete against Amazon and the other players in this market," Gens said. "When they bought SoftLayer, they got the technology. Now, with this investment plan, they're introducing themselves to be competitive around scale, which of course is very important in the cloud world."

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