There's no denying the impact cloud-related technologies are having on both business and consumers. So it's no wonder that some of the technology industry's biggest players are diving headfirst into the deep end of the cloud pool. Microsoft (NASDAQ:MSFT) CEO Satya Nadella makes a point of alluding to his "cloud-first" mantra at seemingly every chance he gets. And Nadella is not alone.
IBM (NYSE:IBM) CEO Ginni Rometty has laid out her own version of a cloud-first vision through IBM's "strategic imperatives." Though Rometty's vision for the future includes leading the charge in the Internet of Things, business intelligence, and mobile solutions, among other cutting-edge technologies, cloud solutions are already playing a big part in IBM's future. And based on a recently announced cloud contract with the U.S. Army, IBM isn't just making strides; it might have taken the first step to dominating what is quickly becoming a huge market.
How big is big?
According to research firm Gartner, cloud computing will become "the new style of elastically scalable, self-service computing, and both internal applications and external applications will be built on this new style." What does that mean for cloud service providers such as IBM and Microsoft? Revenue -- lots and lots of revenue.
By next year, just the worldwide software-as-a-service piece of the overall cloud pie is expected to generate over $100 billion in revenue as more information-technology leaders shift to cloud-based solutions versus the traditional means of compiling, hosting, and utilizing data. In fact, 42% of IT decision makers intend to increase spending on cloud technologies this year, and the shift isn't expected to slow anytime soon.
A big step in the right direction
While IBM hasn't quite caught Microsoft's cloud revenue numbers, it is already making big strides. As of last quarter, Microsoft was enjoying its sixth-straight reporting period of triple-digit growth in its cloud services unit, and is now tracking at an annual run rate of $5.5 billion. Industry pundits still point to Amazon.com's Amazon Web Services division as the leader in cloud sales, but Microsoft is certainly closing the gap. And IBM isn't far behind.
IBM's cloud delivered as a service revenue jumped a whopping 75% last year, and is now generating an annual $3.5 billion. Cloud sales are a big part of the reason Rometty's strategic imperatives now represent 27% of IBM's total revenue. And the new deal with the U.S. Army "to power one of the biggest logistics systems in the U.S. federal government," per an IBM press release, will boost IBM's objective of generating a larger slice of its revenue from cloud and related services.
Naturally, doing business of any size -- let alone on the scale of IBM's new logistics deal with the Army that includes as many as 40 million transactions daily -- requires comprehensive data security and risk protocols. Which is why IBM has a couple of data centers in the U.S. built specifically to meet stringent government guidelines.
The agreement with the Army could very well be the precursor for future, significant federal government partnerships. And why not? According to IBM, the Army will save an estimated 50% by implementing its new cloud-based solution.
In and of itself, IBM's new deal with the Army is a huge step in its objective of winning the cloud wars. No, it doesn't immediately catapult IBM above Microsoft or Amazon in the race to dominate the cloud, but the ramifications for investors are awfully intriguing. The federal government collects and maintains a staggering volume of data among its myriad departments, which translates to a huge opportunity for cloud service providers such as IBM -- particularly now that it has such a big foot in the door.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Gartner. The Motley Fool owns shares of Amazon.com and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.