What is SoftLayer, and what did IBM, EMC and AT&T see in them?

It has a fraction of the market share compared to Amazon, but IBM sees something special

After two months of rumor, SoftLayer Technologies found a suitor in the form of IBM. The two firms announced Big Blue would purchase the privately-held cloud services provider, ending months of speculation over what suitor might win the hand of the firm.

Not only was IBM interested, EMC and AT&T had previously checked out the company at one point, according to a Reuters report from earlier this year but bowed out, clearing the way for IBM. It shows how hot the cloud services market is because with SoftLayer comes a very large infrastructure that would take years to build. Terms of the deal were not disclosed since SoftLayer is privately-held, but the company has disclosed that 2011 revenues in the range of $335 million and was very profitable, so IBM probably paid a significant multiple on the firm.

Charles King, principal analyst for Pund-IT, said there were a few reasons SoftLayer would make an attractive acquisition target. "The company is large, profitable and well-established, meaning ROI on any deal would begin immediately. Since SoftLayer is privately held, an acquisition would be less complex and might even cost less than purchasing a public company, where contentiousness over fair value/final pricing is common," he said.

With its investments in CloudPlatform and MongoDB NoSQL, SoftLayer has value beyond that of a simple IT hosting/infrastructure provider, added King. "SoftLayer would be of interest to IBM for all the above reasons, since it could be added pretty seamlessly to the company's existing network of hosting data centers that support IBM's enterprise-facing hybrid cloud offerings. In addition, there could be synergies between the two company's customer bases, in terms of both common clients and potential IBM target customers."

That's actually an area of minimal overlap. Marc Jones, vice president of product innovation at SoftLayer, said SoftLayer's customer base is the Internet-centric SMB. "The Internet is vital to their business to be successful and large customers have their entire existence on the Internet and in the cloud. Their entire business runs on SoftLayer. Data is generated, collected, stored and analyzed on SoftLayer," he said.

But IBM indicated it's looking at SoftLayer for an enterprise play. "As businesses add public cloud capabilities to their on-premise IT systems, they need enterprise-grade reliability, security and management. To address this opportunity, IBM has built a portfolio of high-value private, public and hybrid cloud offerings, as well as software-as-a-service business solutions," said Erich Clementi, senior vice president of IBM Global Technology Services in a statement announcing the acquisition. "With SoftLayer, IBM will accelerate the build-out of our public cloud infrastructure to give clients the broadest choice of cloud offerings to drive business innovation."


SoftLayer started out as The Planet, a large Tier III hosting firm with server farms at seven locations in Houston and Dallas, Texas. In November 2010, it merged with SoftLayer, which was more focused on providing just cloud services. When that happened, it began to cull back its service offerings and focus on on-demand provisioning of virtual and bare metal servers, said Nathan Day, chief scientist for the firm.

Since then, the company has grown to 13 data centers worldwide in America, Europe and Asia with 17 network PoPs, its own global private network connecting 100,000 physical servers and 22 million domains. All told, SoftLayer has 21,000 customers.

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