IBM and Its Do Everything Strategy
March 24, 2010
I read an unusual interview with Steve Mills. The story was “Q&A: IBM’s Steve Mills on Strategy, Oracle, and SAP.” What jumped out at me was that there was no reference to Google that I noticed. Odd. Google seems to be ramping up in the enterprise sector and poised to compete with just about everyone in the enterprise software and services market. When I noticed this, I decided to work through the interview to see what the rationale was for describing companies that are struggling with many “push back” issues from customers, resellers, and partners. The hassles Oracle is now enduring with regard to open source and the SAP service pricing fluctuations are examples of companies struggling to deal with a changing market needs.
Please, read the original interview because I am comfortable highlighting three comments in a blog post.
First, Mr. Mills said:
Our technology delivers important elements of the solution, but there are often third-part application companies that add to that solution. No one vendor delivers everything required. The average large business, if you went into their compute centers around the world, runs 50,000 to 60,000 programs that are part of 2,000 to 4,000 unique applications.
Yes, and it is the cost and complexity of the IT infrastructure in those companies today that are creating pressures on the CFO, the users, and stakeholders. IBM’s engineers helped created the present situation and the company is now in a position where those customers are likely to look for lower cost, different types of options. If I have a broken auto, would I go to the mechanic who failed to make the repair on an earlier visit? I seek a new mechanic, but perhaps IBM’s cash rich customers don’t think the way I do.
Second, Mr. Mills offered this “fact”:
But in the enterprise, for every dollar invested in ERP, there will be five dollars of investment made around that ERP package to get it fully implemented, integrated, scaled and running effectively.
My view is that the time value of the dinosaur like applications are likely to be put under increasing pressure by new hires. The younger engineers are more comfortable with certain approaches to computing. Over time, the IBM “factoid” will be converted into a question like, “If we shift to Google Apps, perhaps we could save some money?” The answer would require verification, but if the savings are accurate, the implications for Oracle and SAP are significant. I think IBM will either have to buy its way into the cloud and “try to make up the revenue delta” on volume or find itself in the same boat as other “old style” enterprise software vendors.
Third, Mr. Mills stated:
It’s money. That’s the No. 1 motivator. And money is not a single-dimensional factor because there’s short-term money, long-term money and money described in broader value terms versus the cost of a product. The surrounding costs are far in excess of products. Every month, customers convert from Oracle to DB2. Why do they do that? Well, Oracle is expensive. Oracle tries to use pricing power to capture a customer and then get the customer to keep on paying. Oracle raises its prices constantly. Oracle does not provide a strong support infrastructure. There are many customers who have decided to move away from Oracle across a variety of products because of those characteristics.
I agree. The implication are that IBM is a low cost option. Well, maybe in some other dimension which the addled goose cannot perceive. My view is that time, vale, and cost will conspire to create a gravity well into which the IBM-like companies will be sucked. IBM’s dalliance with open source, its adherence to its services model, and its reliance on acquisitions to generate revenue may lose traction in the future.
And finding stuff in IBM systems? Not mentioned. Also, interesting.
I don’t know when, but IBM’s $100 billion in revenue needs some oxygen going forward. The race is not a marathon. It’s more like a 200 or 440. Maybe Google will be in the race? Should be interesting.
Stephen E Arnold, March 24, 2010
No pay for this write up. I will report this to the GSA who has tapped IBM to build its next generation computing infrastructure. I think IBM will be compensated for this necessary work.
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