- IBM acknowledged that the Securities and Exchange Commission (SEC) is looking into the way the company accounts for cloud revenues, but the provider isn’t alone in reporting practices that can seem inscrutable.
- Will the investigation prompt IBM and others to disclose more detail around their on-demand sales, or by their nature is it too difficult to break out revenue figures that are often bundled together with hardware, software, and other services?
When it comes to forecasting cloud computing revenues, ambitious projections are the rule as number crunchers envision expansive demand for economical on-demand IT services. Yet calculating future cloud numbers is an especially speculative exercise in a market space where many of the top players don’t explicitly report their current cloud figures. The reason for this is fairly straightforward; as bullish as many enterprises – and IT analysts – are on the cloud, revenues from on-demand services still account for a relatively small portion of most publicly-traded companies’ overall sales and thus they are not specifically required by regulation or convention to report those numbers.
Amazon Web Services, widely considered not just the market maker but the dominant leader in terms of revenues, is a prime example. The cloud provider’s retailer parent doesn’t specify exactly how much it earns from sales of on-demand compute, storage, and content delivery services, which are believed to be less than 10% of the company’s overall sales. Instead Amazon categorizes on-demand services sales as part of its “other” non-retail revenue which includes earnings from activities such as branded credit cards. While financial analysts are able to derive enough information to estimate cloud sales of north of nearly $2 billion in the last fiscal year, the lack of financial clarity from Amazon Web Services and other top providers like Verizon, where cloud offers constitute a small part of their overall sales, remains a sticking point.
IBM drew some unwanted attention when the accuracy of cloud revenue reporting was questioned and the company acknowledged in a recent SEC filing that its accounting of on-demand revenues is under investigation by the regulatory agency. Though like many of its counterparts IBM doesn’t publicly report cloud revenues explicitly, the company does tout growth and make growth projections for its on-demand business.
So is there something sinister in this lack of transparency? The reality is breaking out and breaking down cloud sales is a complex endeavor because for so many of these companies cloud deals are just one part of an engagement or sale that might also involve a host of other services, and in the case of a provider like IBM or HP that also produces hardware and software, physical products. However, as cloud revenues start to represent a larger percentage of total revenues, providers are going to have to tackle this challenge in a meaningful way.
For the time being, companies like hosting provider Rackspace that draw a significant percentage of their revenues from cloud sales are a good indicator of growth and momentum. However, to get a true picture of how the managed IT services space is evolving we will need more clarity from providers that sell a mix of traditional and on-demand services.