IBMs Tencent Deal Could Best Twitter Partnership

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IBM announced today that it has partnered with the Chinese Internet Services Provider (ISP) Tencent Holdings — a deal that has the potential to be a lot more lucrative than its recently announced partnership with Twitter.

IBM is trumpeting this one as a major step into the Chinese market that it has been targeting for a long time. What's really interesting is that the agreement between the two is for the provision of public cloud and Software-as-a-Service (SaaS) solutions in China. Financial terms of the deal were not disclosed.

Surprising Connection

Say what? Yup! IBM will be involved in the development of cloud services for the public sector in China, with particular emphasis on developing such services for the small- and mid-size business (SMB) sectors.

Let’s leave the geopolitical implications aside or avoid any discussion about China-US relations, particularly in relation to IT, industry and commercial development. Both countries have been slinging mud at each other for years with allegations of commercial espionage thrown around like confetti at a Chinese New Year celebration.

By any measure, the partnership is surprising given the public sector element of the partnership.

Letting bygones be bygones and moving on, this deal could really turn into a money-spinner for IBM and could also lead to other lucrative contracts in China that would have the effect of putting all Big Blue’s current financial turbulence behind it.

Even without future lucrative deals, this has the potential to dwarf the Twitter partnership just by the sheer number of people and customers that Tencent represents.

So what are we talking about here? In effect, the target product is Tencent Cloud. Tencent Holdings is a massive ISP that has access to a staggering number of enterprises and developers right across Asia.

Cloud-Centric

At Tencent's 2014 Annual Global Partner Conference, Taosang Tong, President of Social Network Group, Senior Executive Vice President of Tencent Group, said Tencent planned to use IBM’s industry expertise in the enterprise space to promote the Tencent cloud in China.

Tencent has a stable and reliable cloud computing platform, while IBM has abundant industry expertise aimed at the enterprise. We will work together to bring ‘Internet mode’ to more enterprise-level clients through cloud computing,” he said.

Already, Tencent claims it has nearly 1 billion users and operates around 400,000 server systems across the country with no real competitors in sight, except, of course, Alibaba. It seems that Alibaba is one of the drivers of this partnership. Not content to just sit and make money as a web retailer, Alibaba has designs on the lucrative data center market, along with the provisioning of Internet services to SMBs too.

Tencent has been countering that with data centers across the country in places like Shanghai and Shenzhen, while it has already signed deals with Hutchison and Equinix to use their data centers in Hong Kong as it moves beyond its borders. With IBM, it aims to provide:

  • Management and operation for public cloud and dedicated cloud from Tencent
  • Industry consulting, cloud migration, integration and technical support services
  • Industry-specific and business process SaaS solutions, including solutions for customer care, digital marketing, enterprise asset management and smart office automation
  • Management and operation for public cloud and dedicated cloud from Tencent

In a statement about the deal, Tencent also talked a lot about smart cities and how IBM’s expertise would help them there. Given IBM’s track record here, they couldn’t have picked better.

Bigger than Twitter

But bigger than the Twitter deal? Long term, definitely. Twitter for all its potential to turn a buck still hasn’t been able to make money. Here’s what CSMWire’s Scott Raynovich had to say about it after it made a loss of $511 million in the last quarter of the last financial year:

Investors may have been concerned about the fact that several metrics showed that user growth is slowing. Monthly Average Users (MAUs) were 241 million, up 30 percent year-over year. But total users grew only 3 percent in the fourth quarter. On metric of usage, total timeline views, actually fell from the third quarter, dropping from 159 million to 148 million."

While we’re not comparing like with like here, but in terms of market clout and revenue potential this just isn’t in the Tencent park when it comes to business impact. Yes, Twitter and Watson will get into bed and, yes, the possibilities of analytics performed by Watson on Twitter real time data is mouthwatering.

That said, to integrate the two and to get both Watson and Twitter working smoothly together is not going to happen overnight. Watson still hasn’t achieved its potential despite the creation of a new Watson business unit and Twitter ...

Let's go back to the fourth fiscal quarter again. That's when Twitter CEO Dick Costolo pointed to the fact that some user interaction metrics such as private messaging are growing, and important revenue metrics such as average revenue per timeline were showing improvement. But the bottom line is that Twitter is just not cutting the mustard.

Fortunately for IBM, Chinese businesses don’t embrace failure and IBM really does the cloud — and does it well, so the potential for serious financial fireworks here is enormous. While the Twitter deal is nice in a kind of Sunday school kind of way, the deal with Tencent has more muscle than a Ford Mustang on jet fuel. Vroom, vroom, Tencent ... Here comes IBM.

Title image by Alex Kwong  (Flickr) via a CC BY-NC-SA 2.0 license.