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IBM Boosts Investment in Cloud Services to Attract Customers

International Business Machines Corp. (IBM) is expanding its cloud services to lure customers to its SoftLayer Technologies Inc. business, which it’s counting on to help reverse seven quarters of falling sales.

IBM is making it easier for developers to build and adjust applications in the cloud, where information is delivered online instead of stored on local servers, said Danny Sabbah, chief technology officer of IBM’s Next Generation Platform. The Armonk, New York-based company plans to spend more than $1 billion on cloud-software development through 2015, a double-digit percentage increase from the past two years.

The move increases IBM’s bet on SoftLayer after acquiring the company for $2 billion last year and committing $1.2 billion in January to add 15 new data centers. As customers rely on the cloud rather than buying their own servers, a slump in hardware demand has contributed to IBM’s declining revenue.

“This is crucial to expanding the potential audience and helping them get benefit and value from using SoftLayer,” Sabbah said in an interview. “This is not just about IBM’s conventional enterprise customers. There will be a lot of emerging companies in different areas.”

The move underscores SoftLayer’s position as one of IBM’s biggest gambles as it faces off with competitors such as Amazon.com Inc. (AMZN) in cloud services.

Big Bet

The price IBM paid to acquire Dallas-based SoftLayer last year was the biggest it has disclosed for a takeover since the purchase of software company Lotus Development Corp. in 1995, according to data compiled by Bloomberg. SoftLayer is becoming the backbone for IBM’s cloud business as the company wound down its legacy SmartCloud Enterprise product this year, Lance Crosby, chief executive officer of SoftLayer, said in an interview last month.

IBM is making these new capabilities available for SoftLayer in hopes of attracting customers in different industries than the typical bank and insurance clients that use its cloud products at the moment, Sabbah said. One new addition is an open-source enterprise software portfolio called BlueMix, a platform-as-a-service that aims to help developers build applications on its cloud infrastructure.

The service would rival existing platform-as-a-service products like Amazon’s AWS Elastic Beanstalk, Heroku Inc.’s development platform and Red Hat Inc.’s OpenShift.

IBM has agreed to acquire Cloudant Inc., a cloud-delivered database company, whose services will be offered in the BlueMix portfolio, the company said today in a statement. Financial terms weren’t disclosed.

Watson Services

SoftLayer will also gain middleware offerings, including WebSphere, to let apps be installed on hybrid clouds, which can access data both onsite and offsite.

IBM also said last month that it would create a new business division around its Watson technology, which can analyze large volumes of data and answer questions in conversational language. IBM will invest more than $1 billion in the unit and give it a headquarters in New York. Watson’s big-data services, which let customers mine vast troves of information, will be run on SoftLayer’s cloud.

IBM will integrate its Power Systems servers into SoftLayer’s cloud to help support Watson and will make it available in the second quarter of this year, said Robert Leblanc, senior vice president of software and cloud solutions at IBM.

“We’ve been shifting resources for a number of years into this space,” Leblanc, said in an interview. “The $1 billion is additional investment over the next two years to continue down that path and bring even more services out to the cloud.”

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net

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