Workday Inks Seven-Year Deal to Use IBM Cloud Services

Business software provider Workday Inc. on Monday expects to announce a seven-year deal to use International Business Machine Corp.'s cloud-computing services for some internal operations.

The deal, in which Big Blue is winning a marquee customer with solid cloud credentials, comes soon after two recent reports from analysts raised questions about IBM's ability to compete with Amazon.com Inc., Microsoft Corp., and Alphabet Inc. in the contentious market for computing horsepower delivered over the internet.

Workday, which makes web-based human resources and finance software, will use IBM's SoftLayer cloud-computing service to test and develop new programs. Under the terms of the agreement, IBM will be Workday's primary provider of computing capacity for software development and testing, providing the majority of processing power needed for these activities. Previously, in this area, Workday used a mix of its own data centers and cloud-computing infrastructure from Amazon. Workday will continue to use Amazon for some of this work.

The terms of the deal weren't disclosed.

IBM's software hosting services have faced challenges recently. Last week, Australia's online national census website, which was hosted by IBM, had to be shut down after a series of cyberattacks disrupted citizens' ability to enter information.

IBM said in a statement that it "genuinely regrets the inconvenience that has occurred." The company pointed out that while hackers had interrupted the census, no data was accessed or stolen in the attack.

A report from Deutsche Bank in May said that IBM was losing ground to Amazon and Microsoft in a major segment of the market known as public cloud infrastructure, and corporate customers increasingly weren't considering using its services. Gartner Inc. earlier this month said that IBM was falling behind in the same segment while Amazon and Microsoft were gaining steam.

Still, Synergy Research Group and other firms that track IBM's revenue tend to categorize the company in the same league as cloud services from Amazon, Microsoft and Alphabet Inc.'s Google. IBM reported substantial cloud revenues that rose 30% to $3.4 billion during the second quarter from the same period a year earlier.

"There's a lot of noise in the industry on cloud providers," said Jim Comfort, chief technology officer of IBM Cloud. Big Blue is investing billions of dollars in cloud computing, he added.

IBM acquired SoftLayer for $2 billion in 2013. Since then, it has invested $1.2 billion to expand the service, according to a May report from Deutsche Bank.

IBM SoftLayer counts a range of large customers including SAP AG, VMware Inc., Coca-Cola Co. and 1-800-Flowers.com Inc. IBM notes that most clients don't specify how they use SoftLayer services, so the company doesn't know how many are, like Workday, using it for software development and testing.

"With this announcement, we will begin migrating a portion of those workloads onto the IBM cloud," said David Clarke, Workday's senior vice president of technology development.

Mr. Clarke said he hopes to make Workday's software development and testing more productive and efficient by using IBM's cloud services. Workday may expand its use of SoftLayer into other areas later, the company said.

SoftLayer offers services from nearly 50 data centers around the world, so Workday can deliver its services within many countries while working with a single vendor, IBM said. Some countries require data to be housed within their borders, and proximity to users can make applications more responsive. Some rival cloud-computing providers operate in fewer local areas.

Monday's announcement will build on an existing partnership between IBM and Workday. IBM offers global Workday Consulting Services and in 2015 acquired Meteorix, a Workday services partner. In addition, IBM is a Workday customer, using Workday's Human Capital Management software to manage its own workforce.

Write to Rachael King at [e-mail]

(END) Dow Jones Newswires

August 15, 2016 01:05 ET (05:05 GMT)

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