Earlier today, IBM launched a “bold” (their words) new marketing campaign about cloud computing, with an ad in today’s Wall Street Journal stating that IBM’s cloud “powers 270,000 more websites” than Amazon. Not too shortly after the ad was in the market, I received an inquiry asking if this figure is actually true.
The short answer to that question, is yes.
The medium-length answer is that IBM is quoting figures from hostcabi.net which appears to crawl through the top several-hundred-thousand websites on the Internet and figure out where they are homed. The methodology hostcabi.net probably uses would involve verifying IP addresses for the top sites against various registries like ARIN, RIPE, APNIC, etc. I’ve actually performed similar analysis of the market in the past so I believe the methodology (and the results) are generally sound – for what is being stated.
The long answer (because the devil is always in the details), is that the types of sites matters. About 18 months before their acquisition, Softlayer was (according to public statements) on a revenue run-rate of about $340 million annually. However, in the same quarter for Amazon, their “Other” revenue was coming in at a run rate of about $1.6bn annually. While the “other” line item in Amazon’s financials also includes some non-AWS items – like marketing and promotional agreements, seller sites, and co-branded credit card agreements – those portions of “other” are not generally believed to be significant, and Gartner believes (as many financial analysts have published) that Amazon likely had close to $2 billion in AWS revenues in 2012.
So how does IBM/SoftLayer end up being the provider to so many more “sites” on the Internet, on presumably smaller revenue? In the world of hosting, size matters – and SoftLayer had good successes in the market in underpinning some shared hosting providers, such as HostGator (which claims to have 12,000 servers under management, and is a partner of SoftLayer’s). This can tend to skew numbers a bit, as shared sites are frequently quite small – in fact, even as I am writing this blog post there is an ad for “$0.01 Web Hosting” with HostGator running on hostcabi.net’s site. Shared hosting is not “cloud”, and what small websites lack in size … they tend to make up for in volume as the “long tail” of the market. To be sure, using the same yardstick that IBM has chosen, GoDaddy nearly surpasses Amazon and SoftLayer combined with 431,087 websites as of today … compared to 358,532 for SoftLayer and 73,821 for Amazon.
Based on Gartner’s own research (using similar methodologies as hostcabi.net) we believe that Amazon Web Services is now being leveraged by 10% of the top 5,000 websites in North America – so Amazon is definitely taking a bite out of the market from many other players.
Of course, none of this diminishes the value of the property that IBM has picked up – SoftLayer has some very innovative capabilities, all built with in-house developed intellectual property, and was very successful overall in the broader hosting market … and will likely continue to be in their new home with IBM (my colleague Lydia gave an in-depth overview of the transaction here). However … that doesn’t make for a very eye-catching headline to splash across the pages of the WSJ – so while the marketing team over at IBM is being accurate; they’re choosing a very specific view of the market as well.