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Big Blue Struggles With Underdog Reputation In Cloud Computing

Stocks in this article: IBM VZ RAX AMZN MSFT

IBM was a high-risk choice according to the CIA in court oral hearings. Judge Thomas Wheeler of the U.S. Court of Federal Claims ruled against IBM in October 2013 because the "overall inferiority of its proposal lacked any chance of winning." According to Judge Wheeler, IBM had no grounds to protest the company's award and that Amazon's cloud contract should be restored.

Research firm Gartner rated IBM the worst cloud infrastructure provider in an August 2013 study, putting it below Microsoft (MSFT), Rackspace Hosting (RAX) as well as Verizon Communications (VZ).

Investment in cloud innovation is still a focus for the tech giant according to CFO Martin Schroeter. "We're continuing to make investments in key growth areas such as mobility, security and cloud and these initiatives are gaining traction but are not yet at scale" said Schroeter on an earnings call in April.

IBM may be able to keep up with the competition of the cloud computing market because of how it combines the different cloud models. "The hybrid cloud market is customizable," said Wahlstrom, in a phone interview, "that's where IBM offers a lot of value."

Hybrid cloud combines private and public cloud models. The private cloud secures a company's information and applications by making it only accessible to specific users. The public cloud provides information and software without requiring users to pay for the service. The hybrid cloud offered by IBM also gives companies the ability to share the different data and applications to users but companies can decide what information stored in the cloud would require payment to access or be free to the public.

IBM is also pursuing initiatives in mobile and cognitive capabilities.

"We now have over 3,000 mobile experts. Across software and services, IBM's mobile business doubled from the prior year," said Schroeter in an April earnings call.

IBM recently partnered with Epic Systems to compete for an $11 billion project to manage U.S. troops' electronic health records according to a company press release in June. The project would serve 9.7 million beneficiaries, including active duty, retirees and their dependents by replacing the Military Health System clinical systems.

The company is also calling on IBM's artificially intelligent computer system, Watson. IBM plans to invest $100 million in start-ups "to fund the ecosystem" of entrepreneurs building applications with Watson, according to press release in January. Armonk, N.Y.-based IBM is investing $1 billion in the New York based Watson Group which will focus on bringing cloud-delivered cognitive applications and services to the market.

Over the past year, IBM has applied its cognitive technology to industries such as healthcare, finance and retail. The company is co-developing an application with Memorial Sloan-Kettering Cancer Center, partnering with WellPoint the University of Texas MD Anderson Cancer Center, and the Cleveland Clinic Lerner College of Medicine. With these partnerships, IBM is developing a cognitive computing tool that will to help physicians and medical students make more informed and accurate decisions from electronic medical records.

Technology initiatives in retail include IBM's introduction of the IBM Watson Engagement Advisor. Through Watson, retailers would be able to efficiently manage unstructured data to understand customer trends and needs as well as reinvent decisions about pricing and purchasing.

"This is the first time IBM is trying to commercialize Watson. Watson has gotten a lot smarter, a lot smaller and a lot faster," said Wahlstrom.

-Written by Kathryn Mykleseth in New York.

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