There's nary a tech vendor in the market that doesn't have a cloud computing story to tell. Every vendor - hardware or software - is touching cloud services in one form or another.
And rightly so: most see cloud computing and the services model as the wave of the future.
The problem is cloud transformation - the conversion of revenue streams from traditional product sales to recurring revenue - isn't easy. IBM's most recent quarterly earnings confirm this, even as the company's cloud revenues top $1bn for the first time.
The challenge facing vendors and providers alike is how to build cloud sales and revenue in such a way that it not only replaces declining sales of traditional products, but produces incremental growth.
Few vendors or VARs with legacy business models have been able to pull off this trick.
IBM's earnings are emblematic of this challenge. IBM is placing multiple bets on cloud computing.
Its software units have developed management platforms, multi-tenant applications and reference architectures designed to enable private, hybrid and public clouds.
In the channel, IBM is backing business partners - managed services, hosted services and cloud providers - with sales, marketing and technical support.
And it plunked down nearly $2bn (£1.2bn) to buy SoftLayer, a cloud hosting and service provider, to augment its capacity.
Clearly, IBM sees cloud as a significant pillar in its future.
For the first time, IBM broke out cloud revenues in its earnings report, boasting more than $1bn in sales. This puts IBM in the small but growing cloud billion-dollar club alongside companies such as Microsoft, Amazon and Salesforce.com.
It's a significant milestone -- considering there aren't many billion-dollar tech vendors, much less billion-dollar business units within tech vendors.
Here's the problem: $1bn isn't enough to offset declines in hardware sales. So far this year, IBM has lost nearly $800m in hardware sales.
According to research firm IDC, server demand on a unit basis fell 2.4 per cent in the second quarter. It's a relatively modest setback, but global server sales revenue fell 6.2 per cent.
This shows server prices are commoditising fast.
IBM is the world's server market leader. But that leadership position isn't what it used to be. Big Blue's 27.9 per cent market share is down from its previous second place position in 2012, when it held 29.1 per cent.
What this means is IBM total share of the server pie is shrinking at the same time prices are falling. Hence, the revenue decline.
It takes time to build recurring cloud revenues. In the process, vendors and providers have to content with the problem of revenue exchange - cloud dollars are not equal to hardware and software dollars.
What a customer spends on cloud is typically less, at least in the short term, than a one-time hardware or software product purchase.
Other vendors are experiencing this phenomenon. Software maker Adobe recently announced a 9 percent decline in revenues as it transitions to subscription-based services for its Creative Cloud.
Microsoft says it is now earning $1bn a year from cloud services such as Office 365 and Azure, while its Windows and Office franchises are under pressure.
Over time, IBM and others will accrete recurring revenue from cloud computing that will produce higher and more predictable returns.
Larry Walsh is chief executive officer and president of Channelnomics
As part of our special editorial partnership, CRN is republishing this article from Channelnomics
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