IBM's next slogan: Sexy's out, boring's in
IBM hasn't been cool or sexy for years. The Charlie Chaplin era was cute and yes, Big Blue did legitimate the PC as a business tool. But that's ancient history. This company--never the hippest cat around--turned utterly super square under Lou Gerstner in the 1990s when IBM began to de-emphasize its personal computer business in favor of services, consulting, and infrastructure.
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IBM)
More than a decade and a half later, the remodeling of IBM started by Gerstner--and his successor Sam Palmisano--has resulted in a very different sort of company from the one I began reporting on in the mid-1980s. Lenovo now runs what used to be IBM's PC business. Even more significant, in 2002, IBM bought PricewaterhouseCoopers Consulting for $3.5 billion. At the time of that announcement, The New York Times had it right when it described the deal as a big move by IBM to transform itself into a provider of "information technology to corporate customers as a utility-like service."
Now that the easy times are over, we'll see whether IBM made a prescient bet. Until the clouds lift--and who knows when that will be--repeating revenues obviously are top of mind for Big Blue as well as for its rivals. There's little percentage gain in ringing up transactions for installing a single piece of software with economies around the world heading into a recession (or worse).
So it was that I was particularly interested in IBM's interim report card--its quarterly earnings report--announced earlier this week. IBM announced a 22 percent increase in third-quarter earnings helped to a great extent by the strength of its software and services business. Pre-tax profits at IBM's Global Services segments rose 23 percent (which also was the highest level of services pre-tax margin in six years.) That was fortunate given how IBM's hardware sales dropped 10 percent--and that's also likely a harbinger for other big hardware makers.
Not surprisingly, IBM was in an upbeat mood to trumpet the news as well as its belief that the line between services and software is fast blurring (and maybe it is.)
"What we bring to bear is our knowledge of how the infrastructure works as well as how it fits into a particular business," said Kristof Kloeckner, the vice president responsible for software strategy and technology at IBM. (For that matter, I'm quite sure Hewlett-Packard can make a similar claim, but that's show business.)
With the economy wheezing, every technology provider is going to be under margin pressure. So to the degree IBM can help clients transform their information technology and business agendas, that's money in the bank. And that's going to involve things like service-oriented architecture solutions, new infrastructure development, and business processes.
It doesn't exactly make the pulse race faster. But those bland buzzwords can amount to billions of dollars in recurring revenue streams. Nothing boring about that.
Charles Cooper has covered technology and business for more than 25 years. Before joining CNET News, he worked at the Associated Press, Computer & Software News, Computer Shopper, PC Week, and ZDNet. E-mail Charlie. 
Those are just a few, non-glamorous things.
But I bet you use something running on IBM every day.
IBM's mainframes power websites(purchasing transactions etc) all over the world, and IIIRC Linden Labs uses IBM mainframes to power Second Life.
1) IBMs reputation of knowledge in service industry stands at a precipice. IBM once was in the inventor and constructor of most modern technology. This reputation is one reason customers hire their services groups. However as IBM has retreated further invention and construction it becomes difficult to claim their service teams are any better than those of their competitors. Its also true that IBM's consultants generally have no special connection to the real guru's in their labs, and customers are starting to figure this out.
2) IBM capitalized heavily on the tide of outsourcing and off shoring, but now the tide is going out. With unemployment rising in many wealthy nations its becoming a political problem for governments seeing domestic jobs off-shored. Its very likely that next year we will see laws giving businesses tax incentives to retain domestic jobs. In addition many companies that outsourced are finding they are not saving as much as forecast. Furthermore as service contracts come up for renewal the choice of paying more or suffering the disruption of changing vendors is becoming an issue. Outsourcing has been like signing up for a first time cable user special, the introductory rate is too good to pass up, but once that period is over and the real bill arrives, its a shocker. Within 2 years I suspect their will be a rush to move some outsourced operations back in house where disruption and costs can be better stabilized.
3) IBM has a reputation of buying old enterprise software deployed by large corporations and cash cowing their license costs. These products have been keep on just enough development life support to stretch their lives. But many are now at a point they are difficult to put to put a new layer of lipstick on. But worse yet Microsoft has beat IBM to the punch buying up and/or inventing the logical replacements for IBMs geriatric enterprise software catalog.
4) The next gen technologies are backed by a new generation of companies like Google who are hardened more than previous competitors to elbow away predatory industry old timers.
Even with tough challenges ahead IBM is a survivor that has re-invented itself a few times. IBM excels at catching less obvious new waves and selling them. I would not predict their downfall, I would just predict that 10 years from now IBM will be a very different company than today.
This is a spot on comment. At least when it comes to IBM's BCS/IGS services.
I do respect the PWC guys who I've met and worked with. IGS? Not so much. They could work with the lab consultants, however, due to internal politics and policies IGS tends to snub the labs in favor of better margins on their own staff or outside subcontractors.
With respect to the software comments...
I would have to disagree with #3 and #4.
Microsoft's products don't scale.
Google is a lot of hype and is living off their monopoly in online advertising. Google is definitely a forward thinking company and they do have some very good ideas and the capital to put them in to effect. But IBM is also working along similar ideas, although they are not perceived as the technology leaders.
IBM makes money because IBM = I BE MEDIOCRE. You don't need to be the best to make money. Just need to have good margins and do well enough to keep the clients happy.
I'm still going to stand by 3 and 4.
IBMs enterprise software lines such as Tivoli, Websphere, Lotus, and Rational are all very long in the tooth, and very luck the past few weeks to be given a reprieve by the failing economy. A new generation of IT managers coming more from management programs than technology backgrounds, and having been raised in a period of rapid technological change are coming in. To them these old products graph as a decade of flat lines in terms of cost savings or new productivity, thus ripe opportunity for career buzz. Many are, and quite foolishly in some cases, abandoning old and reliable. Microsoft among other players have tapped into this, and are literally giving away stuff to make conversions happen. Sadly I think this will go like offshoing where the introductory rate will look good but 2 years from now no savings will be realized and it will be just a new software vendor putting lipstick on an aging pig. But then again .net will mop J2EE when used for the right situations, not every jump will be a failure.
As for next gen while not all new players have hardened, Google definitely has in the area of ad based computing and search and have kept MS and others at bay for quite some time. The ad model isn't perfect, but its kept TV going for several decades. Their new android open source phone platform also shows brilliance and with its openness and armies of phone makers it could push closed source iphone aside similar to how pc's and windows pushed aside mac 2 decades ago. What ownership of the magic convergence platform will mean its too soon to tell, and hey its open source so IBM can latch on.
Regardless I still arrive at the same point, IBM is great in figuring out where the next next big wave will be, and selling mediocre surfboards to ride it.
The companies that can reinvent themselves to serve, will prosper.
Age has no benefit. Today's techno-glitz has little benefit.
The ability to change and serve the client is what counts, and that will not change.
- by IboNeumann January 22, 2009 1:18 AM PST
- The headline is strange. Sexy out and boring in. Why is consistency, being big, always visible, influental and integer considered boring?
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(9 Comments)Get rid of these Gangsta Rap CDs, for real and I start taking care of my spelling.
Regards, new boring hire at Big Blue