Crosby joined IBM last year when it paid $2 billion for SoftLayer Technologies, which he founded. The Dallas-based startup helps companies outsource computing tasks to off-site data centers, in what's known as the cloud.
Under Crosby, SoftLayer has become the centerpiece of IBM's effort to get more sales from the cloud as existing businesses like servers, storage and technology services lose ground. Just last month IBM Chief Executive Officer Ginni Rometty scrapped a long-held profit projection for 2015 while forecasting a drop in adjusted earnings this year for the first time since 2002. The challenge for Crosby, 44, is getting IBM colleagues to simplify how they hire staff, sell products and develop tools, while also widening their customer base.
At IBM, "there's more smart people than I've ever met, but not necessarily cloud smart," Crosby said in an interview. "A lot of things happen within an organization because that's just how things have happened. It takes like a challenger to come in and say, 'Why are you doing it this way?'"
It's not easy transforming a company that employs more than 430,000 people with a team that numbered 700 when SoftLayer was bought. Crosby's office is on the second floor of SoftLayer's Dallas headquarters, which bears little indication that the startup was ever purchased by IBM — based some 1,400 miles away in Armonk, N.Y. The sign still reads "SoftLayer," with the 'E' as the company's trademark red, black and red horizontal bars. No trace of Blue to be seen.
IBM is also playing catch-up with Amazon.com and Microsoft, which have a bigger slice of the market for cloud-computing infrastructure.
IBM is only beginning to make progress, and some investors are skeptical. Brian Barish, who helps oversee about $11 billion as president of Denver-based Cambiar Investors, said he doesn't own IBM shares because he's not sold on the company's ability to reinvent itself this time.
For IBM, "it's a tougher transition," he said. "When we have paradigm shifts in tech, and we are having one, the old soldiers need to adapt. They don't have forever to do it."
Sales of IBM's cloud offerings "delivered as a service" are up 80 percent, on pace for $3.1 billion a year, the company said last month.
IBM is projecting about $7 billion in total cloud-related sales next year, with $3 billion of that coming from new offerings and the rest from older products shifted to be delivered via the cloud. Cloud revenue is already up more than 50 percent this year from $4.4 billion last year, Schroeter said Tuesday.
Even so, that's still a tiny fraction of IBM's almost $100 billion in revenue last year. IBM's single-digit market share in cloud infrastructure services is only about a quarter of leader Amazon's, according to Synergy Research Group.
"We have more to do and we need to do it faster," Rometty said on an earnings conference call last month.
With Crosby's help, Rometty has to pitch IBM's cloud offerings not only to existing customers, but also to growing companies that will one day be the biggest users. Crosby built his whole strategy around understanding customers' needs. His first clients were gaming companies and tech startups, a contrast to IBM's traditional government and large-contract customers.
"They really need to create a product strategy and services that's for the customer in the next five to 10 years — for the large enterprises of tomorrow," Daniel Ives, an analyst at FBR & Co., said of IBM.
So far, Crosby is overseeing the opening of 15 new data centers, bringing SoftLayer's total to 40 locations, and has added 6,000 cloud customers to SoftLayer's existing 20,000 at the time of the acquisition. He's also added systems to host IBM's Watson data-crunching technology, and SoftLayer has doubled its workforce to about 1,400 since being acquired.
SoftLayer will be moving to a new headquarters several blocks away in Dallas next year.
The biggest hurdle remains making IBM's vast portfolio of software and services available on the cloud. That means adapting the technology that used to be ordered through IBM salespeople and installed in customers' data centers, and instead letting customers purchase those offerings online and have it delivered via the cloud. That enables clients to get new products and updates faster and helps them cut costs by allowing them to pay only for what they need when they need it.
"If I screw this up," Crosby said, "all of the other things that we do inside IBM potentially get screwed up because they all inherit the attributes that I put into the infrastructure."
To help the teams understand each other's technology, IBM installed Sonny Fulkerson, formerly in the software division at IBM, as Crosby's new chief information officer. Bridging that gap between SoftLayer's foundation and the applications proved to be a challenge.
"He couldn't understand why the infrastructure couldn't do all these things," Crosby said in an interview at SoftLayer's headquarters. "My guys couldn't understand why the software people wanted all these stupid widgets. Now they have a whole new appreciation that helps them when they design products."
SoftLayer was founded in 2005 — 94 years after IBM — with 10 people in Crosby's living room.
By 2010, SoftLayer started drawing enterprise customers; then, Crosby watched other tech companies with deeper pockets getting ready to pounce on this shift to the cloud.
"When it became obvious that Amazon was going to do anything, we were like, 'Well, we're going to get lapped,'" Crosby said. So he went to his private-equity backer, GI Partners, and they decided putting the company up for sale was the best path to getting bigger faster.
After fielding an initial pool of 36 suitors, Crosby was won over by Rometty's take on where the cloud-computing industry is headed, he said. A $2 billion takeover and an additional $1.2 billion investment later, SoftLayer was the center of IBM's push into the cloud.
It wasn't until the acquisition that Jose de Castro, chief technology officer at communications-app startup Tropo, decided to be a SoftLayer customer.
"It was the combination of the two brands that made them both approachable and made our tier-one customers more comfortable," de Castro said in a phone interview. "The old IBM offering, we looked at it but it just seemed a little too IBM. They just have the perception of being less approachable."
IBM declined to make Rometty available for an interview.
Rometty's predecessor, Sam Palmisano, had laid out a plan in 2010 to double profit to $20 a share by 2015. Then it was up to Rometty to get there. So she started buying back shares, divesting less profitable businesses, cutting jobs, and pushing IBM to develop businesses around big data analytics, cloud computing and mobile technology. Sales are on pace to fall for a third straight year.
The strategy came to a head last month after what Rometty called a "disappointing" quarter. She ditched the 2015 profit goal. On Tuesday, Chief Financial Officer Martin Schroeter said the company is unlikely to lock itself into another "absolute" earnings-per-share roadmap.
This isn't the first time IBM has been forced to revamp its business to survive. The company was pushed to the brink of bankruptcy in the 1990s when newer computer makers won over businesses and consumers, putting IBM's desktop personal computers out of vogue. Big Blue sold its PC unit in 2005 and plunged headlong into selling software and services.
Getting up to speed with cloud computing has been a struggle for IBM and rivals like Oracle and SAP that built their businesses on doing specific jobs in customers' data centers. Companies like Amazon, Microsoft, Google and IBM now maintain the servers so clients don't have to house and take care of them on location.
Introduced in 2011, IBM's home-grown cloud business was called SmartCloud. It was designed for very large customers to store data and run parts of key business applications. After the SoftLayer acquisition, IBM quietly shut down the legacy offering, transferring customers to Crosby and only keeping some of the more premium older products.
SoftLayer has already helped IBM add customers such as China's Tencent Holdings and partners like SAP, which will use IBM's data centers to deliver database and platform offerings to customers via the Web.
"The team is very agile, very fast moving and very cutting edge," Kevin Ichhpurani, senior vice president and head of business development and strategic ecosystem at SAP, said in an interview.
Still, IBM lags behind those rivals who went after newer customers in cloud infrastructure services. Amazon's AWS offering had 27 percent of the market last quarter, according to Synergy Research. Microsoft has more than doubled revenue growth to keep the company in second place with 10 percent market share. IBM lags behind in third with 7 percent.
Crosby and Rometty made a deal when he picked IBM off a final short list of six potential acquirers: SoftLayer was to stay intact as its own business within the tech giant for two years while integrating IBM's technology and being given funds and people to expand the business.
"One of the things that I had on my scorecard was a real potential negative for this acquisition was culture: the difference in the culture of SoftLayer and the difference in the culture of IBM," he said. "I said, 'Hey, it's going to take some time to integrate this company. You learn more about us, I learn more about you.'"
More than a year after the deal closed, Crosby's employees — whom he calls "SLayers" — still sign their e-mails "3BFL." It stands for SoftLayer's "three bars for life" logo.
Share
