IBM’s Acquisition Of Neudesic – A Match Made In Hybrid Cloud Heaven

IBM is continuing its string of acquisitions, with 20 completed over the past two years alone, to expand its capabilities and ecosystem for Hybrid Cloud and Artificial Intelligence (AI). Neudesic, a Cloud ecosystem consulting firm focused on Microsoft Azure, AI, and multi-Cloud was the latest addition. Other recent purchases fueling IBM’s Cloud ecosystem vision include BoxBoat Technologies, Turbonomic, Taos, Instana, and Spanugo among others. IBM has also been adding hundreds of new partnerships in this segment. This is a marked acceleration of activity compared to only 8 acquisitions between 2017 and 2019.

Acquiring Neudesic is not a surprising choice since most of IBM’s recent acquisitions have been services companies and we are likely to see more similar moves in the future. With the global shortfall of nearly 40 Mn technology workers in 2021, 87% of businesses are feeling the talent shortage acutely¹. This is a strong driver to bring more technology talent (especially certified talent) in-house.

What Neudesic’s Acquisition means for IBM

This latest acquisition fuels IBM’s strategy across multiple high-growth markets. First, the USD 70 Bn² global Hybrid Cloud market remains more fragmented than the Cloud Infrastructure market, and is estimated to grow by 21% by 2026³. Second, the USD 27 Bn AI market⁴, which is also accelerating Cloud AI adoption and use cases is slated to also grow by over 20% from USD 7.5 Bn to USD 9 Bn. Third, the USD 36 Bn market for Professional Cloud Services is set to experience 17.5% growth⁵.

“Over the last decade, IBM has transformed itself to meet the mission-critical needs of our clients. Today, IBM is laser-focused on open hybrid cloud – a USD 1 Tn market opportunity. Our hybrid cloud platform provides a full stack of capabilities to clients including our AI-enabled software portfolio, cloud transformation services, systems, security, and the IBM public cloud.”

– Jim Whitehurst, President, IBM

While there is plenty of room for these markets to grow as more companies upgrade their infrastructure, the most exciting part is the new use cases that unified data and AI enable. Value creation will accelerate across all industries from design, to supply chain and business processes. Drug discovery can move faster to address future pandemic threats and other health challenges. Mobile Augmented Reality (AR) devices will leverage Cloud to minimize onboard processing and power requirements. Computers will rapidly improve their ability to understand language and images, broadening their interface to the real world.

Neudesic brings over 1,500 global staff into the IBM ecosystem, led by CEO Parsa Rohani. Founded in 2002 and headquartered in Irvine, CA, Neudesic is a Microsoft Gold Partner with deep Azure knowledge and many certified Cloud experts. With the goal of combining business and technology expertise for Cloud and data challenges, Neudesic has a globalized presence. Over 700 of its employees operate out of the Center of Excellence in Hyderabad, India. This type of presence will improve IBM’s ability to support contracts like its 10-year deal that was signed last July with the Bangalore International Airport Limited aimed at reinventing the end-to-end travel experience for passengers at BLR Airport.

Why Hybrid Cloud is IBM’s Sweet Spot

IBM is a well-known technology leader with over USD 74 Bn in revenues, that has continually reinvented itself for more than 100 years. IBM kicked off this phase of its Hybrid Cloud strategy in early 2020, when three factors converged. First, Arvind Krishna rose to CEO from his prior position as VP of Cloud and cognitive software; so, this is clearly an area where he is an expert. Second, IBM’s 2020 revenue was down 4% but buoyed by 20% growth in its Cloud revenue, reinforcing that this sector has the ability to power its future. Third, the COVID spread forced so much of both business and personal lives across the globe to go online and into the Cloud faster. IBM’s focus is illustrated with the opening line of Arvind Krishna’s “Chairman’s letter” to investors, calling this “the era of Hybrid Cloud and AI.” This assertion is validated by the sheer size of the Cloud market, which was over USD 360 Bn last year, with an almost 16% growth rate⁶.

Neudesic’s multi-cloud focus is a great fit for IBM’s private/public Hybrid Cloud approach. IBM has an install base of over 2,800 clients as of its last annual report, and is growing at a 40% rate. As recently as Q4 2021, this segment was growing twice as fast as IBM’s overall business, with Hybrid Cloud revenue up 16% and consulting up by 13%. IBM’s focus on enabling hybrid deployments differentiates Big Blue from infrastructure giants, AWS and Azure.

“We are optimally positioned for growth with our Hybrid Cloud, AI and services offerings.”

– Jim Whitehurst, President, IBM

IBM’s Spectrum solution for containerized multi-Cloud addresses key customer concerns with data security, by supporting private storage of critical data linked to the operational advantages of the public Cloud. Also, large enterprises with the scale and capabilities to gain the most from hybrid represent 51% of the Cloud market. In addition to its clear investment in Hybrid Cloud, IBM is divesting in other areas such as its last year’s spin-off of Kyndryl and the recent announcement of the Watson Health sale.

Neudesic’s focus on Financial Services, Retail, Healthcare, and Utilities also lines up well with IBM’s industry footprint. 3 of these 4 (Financial, Retail, and Healthcare) also align with the 6 industries that IBM’s partner, Microsoft, is prioritizing, according to Judson Althoff, Microsoft’s Executive Vice President of Worldwide Commercial Business.

What Next for IBM

Looking forward, it will make sense for IBM to strengthen its human capital, especially with talent that is in the high-demand segments. The general shortage of AI and other IT professionals, especially Cloud Certified Professionals, will get worse as demand outstrips new supply. Companies can react to this in a couple of ways. First, other technology enterprises may follow IBM’s example and acquire companies to quickly bring talent in-house. Second, we expect more investment in corporate training to certify more employees. This push will come from both the companies using Cloud as well as those selling Cloud solutions. In fact, many Cloud solution vendors, including IBM, already offer some free training to make it easier for customers to buy and use its solutions.

And now that COVID is finally starting to recede, some of the “land rush” for businesses to just move operations to the Cloud may decelerate, but we anticipate another wave of growth, as companies learn to leverage the Cloud to reinvent how they deliver customer experiences through AI and other emerging solutions. Being “on the Cloud” keeps data in one place and provides a functional point of contact, and this is rapidly becoming table stakes. Going forward, we can offer far richer digital experiences to both consumers and employees by leveraging Cloud, AI, and other digital technologies. What’s considered to be functional today, can evolve to be intuitive, efficient, unified, personalized, and even immersive. Expanding its service delivery team will increase IBM’s capacity to help customers envision and implement that future.

^{1. “The Software Developer Shortage in the US and the Global Tech Talent Shortage in 2022” on DAXX}

^{2. Hybrid Cloud market size worldwide in 2020 and 2026 by Statista}

^{3. Global Hybrid Cloud Market – Growth, Trends, COVID-19 Impact, and Forecasts (2022 – 2027) by Mordor Intelligence}

^{4. AI market size by Fortune Business Insights}

^{5. Cloud Professional Services market size by Knowledge Sourcing Intelligence}

^{6. Cloud Computing market size by Grand View Research}