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No.3 In Cloud Sales Belongs To Google Or IBM?

Google (NASDAQ: GOOG) published a revenue structure which shows that its cloud business made revenues of $9 billion in 2019.

Benzinga · 03/13/2020 14:34

Google (NASDAQ: GOOG) published a revenue structure which shows that its cloud business made revenues of $9 billion in 2019. International Business Machines Corporation (NYSE: IBM) showed $21 billion of sales in the cloud segment, for the same year. Yet, Google is ranked as the third biggest cloud provider in the industry, while IBM ranked as fifth.

Maybe IBM has a reason to be even angrier  when a couple of research companies decided not to even include it in the cloud market rankings. On the other hand, the competition is powerful, as well known to everyone, with this segment being led by Amazon.com, Inc. (NASDAQ: AMZN) with its Web Services, and Microsoft Corp (NASDAQ: MSFT) with its Azure who are currently battling over the JEDI contract that Pentagon had awarded to Microsoft.

What Is The Truth?

Although IBM felt it should be recognized for its achievements in the cloud business, neither the industry nor the market took notice. The analysts have given an explanation, stating that IBM identifies the cloud serviced more generally than the other companies, so it will remain at the lower half of the list, without moving up its market position.

It is up to every company to define its definition and scope of cloud offering. This is quite subjective, especially when the company offers services which both belong to the cloud and another segment.

So, some companies go beyond the traditional scope of cloud and boost their revenue numbers by moving the revenue from one segment to another. This makes comparisons of different companies' revenues structures very hard. The truth is usually somewhere in between. The number should not be too small as the investors will mind, but if the numbers are too big, that may raise some suspicions. Maybe that is what happened in the case of IBM.

Core Cloud Services Vs. Associated Segments

Amazon and Microsoft are holding more than 50% of the pure public cloud market. That includes the infrastructure for companies to rent, providing them with servers, computing power, and to pay for what has been used. Amazon started with these business activities back in 2006.

On the other hand, IBM has only a small share in the pure public cloud market. But IBM specialty lies in other cloud associated segments like software, hosting services and consulting services, aiming to help companies transfer data to the cloud. And IBM is dominant in this market segment. Once you aggregate the two segments, IBM's cloud share starts looking good.

Conclusion

Although all the services IBM included in its cloud revenues are important, many experts argued those services should not be considered as core public cloud offerings. IBM has been struggling with its revenues during the last decade, as it was a bit slower in adapting to cloud computing. Don't forget that IBM is a company with a 108-year long history, so maybe it was not easy to let go of the strategy of big in-house servers that used to be so dominant throughout its rich history.

The company started later than the market leaders, but IBM certainly did not withdraw. It is pushing for new technology, including artificial intelligence and cloud computing. To back this up, the company acquired the open-source software provider Red Hat, which should boost its place in the cloud world as one of the top cloud providers.

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