In the Wheelhouse: Inside "Bridge to Cloud"

Analysis of News Events
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Everyone is moving to the cloud, right? Don't be too sure.


IBM has been talking a lot about CAMSS in the last few years, meaning Cloud, Analytics, Mobile, Social, and Security. Many of IBM's decisions are now based on if they fit the CAMSS model. In short, if it doesn't have anything to do with CAMSS, then it's probably going to be competing hard for budget dollars within IBM.


IBM's cloud business has been apparently flourishing with $7 billion in revenue in 2014, up from $4.4 billion in 2013 and $2.6 billion in 2012. This is made up of Platform as a Service (PaaS), Software as a Service (SaaS), Infrastructure as a Service (IaaS), cloud consulting, and a mix of private and hybrid  cloud solutions.


While IBM has lofty cloud goals with regards to the likes of BlueMix, SoftLayer, and Watson, part of IBM's strategy is enticing existing collaboration customers with their Bridge to Cloud program. What's that? Essentially, it takes your existing on-premises software licenses and changes them to a subscription model. For instance, if you're an IBM Notes/Domino customer, you can purchase Bridge to Cloud instead of your yearly software maintenance and support. This allows you to remain on premises with the ability to migrate your environment to the IBM cloud offerings at any time. Since it's a subscription model, you're now more or less leasing the software, which, according to some IBM Business Partners, is not necessarily what customers are expecting to happen, even if you're running the software on premises.


In speaking with a number of partners under anonymity, Bridge to Cloud is allegedly a wolf in sheep's clothing. Partners are claiming that IBM is just playing a shell game with regard to components of cloud revenue.


How so? It's relatively simple. When you buy a Bridge to Cloud license, it's a new SKU. Traditional software renewals begin with an E, and Bridge to Cloud SKUs begin with a D. According to some partners, these D SKUs are counted as net new cloud sales. These partners aren't happy about competing with IBM reps for the business either.


Here's what one Partner told me:


"What IBM have [sic] done sometimes, and it depends on the IBM rep, is the rep will want the partner to promote Bridge to Cloud with a particular customer. The partner approaches the customer with the opportunity and the customer comes back and says 'Well, we're not really interested in the cloud. It's interesting and all but we're probably going to stay here.' The rep doesn't like that so he calls the IT manager directly and gets told the same thing but keeps going up the hierarchy of the company. Not only are they trying to cut the partner out but even when the customer says no, they'll try and go up the ladder to make someone of power interested.


With Bridge to Cloud they've started with the big customers and now they're coming down. Anyone who hasn't bought it they'll be hammering, both the customer and the partner, in order to get it done.


I've sold a few Bridge deals to customers, one of which decided ultimately to go to Office 365 afterwards and trying to get out of the Bridge deal is just as intriguing as getting yourself into it. When you do Bridge to Cloud, your licenses are term licences instead of perpetual. It essentially becomes a lease option. It's reasonably normal for cloud providers but customers need to understand that."


Another Partner weighs in that Bridge to Cloud is "still a renewal to partners if they're a part of the deal. IBM reps only get commission on D SKUs. So your new Bridge to Cloud license is a perpetual D SKU. All of a sudden they see this as a windfall. Because the way IBM cooks the deal means that partners may lose a little bit of money the first year you buy it but not a lot. They know what your renewal is, they'll special bid that down to whatever your regular renewal price is. That's why it's a no cost switch for the customer. This happens only if we catch the customer early enough to figure out if it's a good fit for them or if IBM doesn't circumvent us to get the deal for themselves first in which we see a lot of attempts."


So if a customer buys it again the year later, does IBM special bid that again? "It depends. A lot of our customers have gotten IBM to sign a contract saying the price won't exceed a certain amount for a few years in order to keep the prices low. Now, the years after's going to be interesting on how much the renewal price is going to be. The likelihood is that the cloud is going to be cheaper for a couple years then will more than likely become more expensive. If you're a good partner you keep an eye on when customer renewals are coming up. Also, and this isn't a Bridge to Cloud problem but an IBM renewal problem but it works the same way. IBM have stacked the game against the partners. IBM routinely sends their renewal quotes out 90 days ahead of time. The partner can only get a renewal quote 30 days after IBM has already sent out the renewal notification. IBM is quoting and hoping the customer pays IBM's invoice before the partners get a chance with a 30 day lead time. This isn't new but IBM swears up and down that it doesn't happen.


With respect to the Bridge to Cloud system, does it matter if customers ever move to the cloud? Not long as the price stays low. In fact, I'd go so far as to say it's ideal for IBM if customers don't move to their cloud because then they'd have to actually use their cloud. That means using storage, bandwidth, and processing power in order to fulfill the order. By the way, it's the customer's responsibility to migrate the data into the IBM cloud, which means that you'll probably have to pay IBM or perhaps a Business Partner to do the migration. This isn't covered under the yearly subscription cost.


But how often do customers actually move to IBM's cloud compared to staying on premises after purchasing Bridge to Cloud? One partner says, "None of the customers we know who've bought Bridge to Cloud have actually moved to the cloud. All the ones I've seen haven't bridged to anything. They're exactly where they were before in their own data centers. They've become on-premises customers counted as cloud customers. What nobody will ask is how much revenue has been lost in the Lotus side of the business that suddenly appeared in the cloud side. In that question you'll find a shell game."


Based on these conversations, the saying that "everyone is moving to the cloud" appears to be a fallacy, which is something I've railed about for years. I won't comment on IBM's accounting practices because I don't believe it's the issue that actually affects customers. Plus the Securities and Exchange Commission (SEC) already sniffed around the IBM cloud in 2013, and I couldn't care less about the accounting. What I do care about is whether customers are under a misapprehension about what they're actually buying, the ramifications of doing so, and what their peers in other organizations are really doing. Those three things should matter to you as well.