IBM Claims A Victory In The Cloud As FleetCor Will Move Infrastructure Behind Its 1.9B Transactions

As competition for leadership in cloud services continues to heat up, IBM is claiming a victory that it's hoping can serve as a blueprint for winning more large customers in upcoming months.

FleetCor, a specialized payments company that powers 1.9 billion transactions per year, has committed to move its infrastructure to IBM's cloud, with the first quarter of its data to migrate over in the next 18 months. While IBM and FleetCor did not disclose the size of the contract, the deal likely runs into the millions of dollars and represents a head-to-head win for Big Blue over its cloud rivals.

While its business of providing payment cards for expenses like fuel and lodgings to corporations may not make it quite a household name, FleetCor expects to exceed $1.7 billion in sales for fiscal 2016 and trades at a market capitalization of about $14 billion. The Forbes Most Innovative Company top 20 member manages about a dozen data centers globally, at a cost today of about $100 million, according to chief information officer John Reed.

"IBM has significantly more scale than us, and we expect to see efficiencies when IBM is processing for us," says Reed. While FleetCor already used IBM z Systems mainframes, the transition to access them virtually through the cloud could ultimately save the company as much as $30 million or $40 million annually, according to FleetCor's CIO.

Big Blue went head to head against its cloud rivals for the contract, winning despite not offering the cheapest price from a group of competitors such as Amazon, Google and Microsoft . Instead, IBM won over FleetCor with its on-site sales teams that helped FleetCor brainstorm new products and have continued to work with their counterparts since the contract was signed, especially in mobile. "When you find a good team, you want to put them in the field for every play," says Reed. "I didn't get that feel from some of the other vendors."

For IBM, which continues to transition its core business to "strategic imperatives" that revolve around the cloud, the FleetCor deal is a symbol of a hybrid approach to cloud in which IBM is trying to establish itself as the leader. In a hybrid cloud set-up, companies keep some of their data and the apps that use it still with on-premise data centers, while building new apps and increasingly housing data virtually on the cloud. "I think this is a proof point that demonstrates where the market is going," says Philip Guido, general manager of IBM global technology services for North America. "We are moving from a systems integrator to a services integrator, to invest in helping enable companies to scale this."

IBM is hoping FleetCor's decision will help prove its security chops to customers in the financial sector. FleetCor's analysis of IBM and its competitors gave IBM top marks for transaction security, key to its business as FleetCor plans to move the remaining three-quarters of its transactions to IBM's cloud after its initial 18-month rollout, at a clip of one per year.

UPDATE: FleetCor has clarified that the company will maintain an on-premise base for non-Z series transactions for the foreseeable future during its migration.

Taken alone, the contract with FleetCor won't meaningfully move IBM from its perch at third in market share behind Amazon and Microsoft. And the company declined to specify if the FleetCor contract is one of the largest in IBM's portfolio. But IBM said it did sign more than 26 services contracts for more than $100 million each in the fourth quarter of 2015, Guido says. "This is a very good proof point, and one of many," says the IBM executive. "That's part of why we are excited we can lead this era of hybrid cloud."