Are legacy tech businesses coming to an end?
Time has been running out for legacy tech businesses like IBM. Few clients today are willing to pay for the inconvenience of physical technology on their premises given there is no longer any need to devote office space to servers. This new reality has been reflected in IBM’s declining revenues and continued job cuts – the company slashed 5,000 jobs in March and then announced another round of cuts in April. Overall 14,000 jobs are set to be eliminated.
IBM’s track record shows it has often failed to capture the potential of new technology. This is the company that developed the first commercial router but allowed Cisco to dominate the market. In 1996 IBM developed technologies to accelerate the performance of the web but latecomer Akamai had the vision to capture the market. Now it looks like IBM is starting to learn from its mistakes.
IBM’s founder Thomas Watson famously once said “I think there is a world market for five computers”. This has long been ridiculed as an absurd notion but he may have actually been right all along. Today we are seeing, like Watson envisioned, a time when only five to ten computers (or clouds) may operate with enough volume to service the world’s computing needs. The cloud wars are only just beginning as Google, Microsoft, Amazon and IBM fight it out for a share of the $204 billion market. Whilst Amazon Web Services is undoubtedly leading the pack, it would be foolish to write off IBM as a non-contender.
The company’s recent pivot to cloud based services is starting to bear fruit. This quarter’s results saw cloud-as-a service revenue up by 50% as they exited the quarter with an annual run rate of $6.7 billion, up from $5.4 billion last quarter. IBM’s growth is being led by the cloud where revenue is up 30 percent. There are several things that differentiate IBM from its competitors in the race to cloud that are worth noting.
Firstly, the company has been signing a large number of partnership deals. My company, WANdisco is one of those partnerships where, as Martin Schroeter, IBM’s Chief Financial Officer said, “we [IBM] will license the intellectual property of select assets within the Integration Software portfolio while jointly going to market to ensure our clients success”. Whilst we are also partnered with Google, Amazon and Microsoft, IBM is the only one who has entered into a non-exclusive OEM agreement with us. This gives them access to our patented technology to create new additions to IBM solutions. The joint development work, funded by IBM, demonstrates how serious the company is about investing to give the best technical offerings to their clients, no matter where that technology originally came from.
Secondly, IBM’s existing ties with Fortune 500 companies make IBM a unique player in the cloud computing space. IBM has said that clients can unlock the most value for their businesses by moving to hybrid cloud infrastructures which provide flexibility and enable new business models while at the same time tying back to their systems of record. Given IBM would have installed the systems of record for many Fortune 500 companies, it is clear they are well positioned to leverage their existing relationships to enable those companies to shift some of their operations to the cloud.
Thirdly, as I have said many times before, having a lot of data sitting around is worthless – the real value lies in being able to analyze large and diverse data sets and act on the results. Cloud native data analytics tools are being offered by all the main cloud players like Amazon, Google and Microsoft but IBM has a secret weapon: Watson. By letting developers use its super smart supercomputer IBM can offer a place for companies to build applications that use Watson’s cognitive computing ability. This matters because most data is unstructured in the form of videos, tweets, emails and so on. Watson is better placed to make sense of that kind of data than anything else on the market. Since he is hosted on the IBM cloud, companies don’t need their own supercomputer to take advantage of what he can do if they stick with IBM.
In a speech at Columbia University, former chairman and chief executive Thomas Watson Junior said “If an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself”. It would appear IBM is doing exactly that and in the process is rediscovering innovation. IBM is not extinct yet. In fact this is one dinosaur that will probably live on.