IBM is a fascinating company to watch, particularly for me because I used to work there. I knew more about the company’s operations and problems than most due to my job as an Internal Auditor. Back then, IBM was dominant in the technology industry due to its offering pretty much everything as-a-service and being way ahead of its time. Sadly, executive management back then didn’t realize what they had and shifted IBM away from its massively successful service-focused model. Since the 1980s, IBM has worked for decades to recover from those mistakes.
Today’s IBM is a blend of the old and the new with around 50% of revenue being recurring, which provides critical financial stability during a time when the world is anything but stable. In addition, IBM again finds itself leading in cutting-edge IT efforts that are garnering a great deal of interest. Hybrid Cloud and AI are arguably two of the most powerful trends in the market, and IBM embraced both early on and has more robust solutions in both sectors as a result.
IBM just released its quarterly results, so, let’s look at those financials this week.
Eating its own dogfood
This was one of the big problems IBM was having when I left the company while Louis Gerstner was CEO. Back then, IBM’s IT group refused to upgrade to newer IBM technology. The excuse was that it wasn’t very good and was too expensive, even though that organization didn’t pay retail prices but transfer prices which were based on IBM’s costs. Arguing that you can save someone money by selling a retail priced product when your own folks are in violent disagreement is problematic, and it led to an ugly decade in the 1990s. I remember Gerstner getting upset and saying, “would you rather I used our best product, or sold them to customers?”, leading many of us to wonder why this was an either/or question given the company clearly could do both.
Today, IBM uses its own technology aggressively and reports up to 90% cost savings resulting from the use of its hybrid tools and solutions. With the IBM Cloud, IBM arguably has the most secure and diverse hybrid cloud solution in the market. Customers, particularly enterprise customers, don’t like to be test subjects for new products and appreciate it greatly when they see that vendor using its own products. This tends to mean problems are identified in-house and taken care of before customers get them, and it results in the vendor better understanding its products.
IBM’s digital assistant
One of IBM’s most interesting initiatives is its digital assistant effort backed up by Watson. Years ago, when IBM and Apple partnered, I’d hoped that Watson would back up Siri and turn that questionable tool into something truly beneficial. That didn’t happen, but IBM has been implementing this technology aggressively internally (94% of internal HR inquiries are now handled by the in-house AI solutions).
This is one of the first truly innovative business uses of AI tools and it is just the tip of the AI iceberg. IBM’s decades of AI development give it a unique perspective not only on how AI works but also on how best to deploy it. While much of that expertise is in banking, finance, healthcare and insurance, it should be applicable to other industry verticals as well.
Security is arguably IBM’s superpower. It took this focus seriously long before I joined the company in the 1980s and had been defending against both domestic and internationally sourced attacks for decades even back then.
This has given the company a very comprehensive approach to the problem which is why IBM now pretty much owns the banking and finance segments because these segments have zero tolerance for security breaches. While security revenues were up a marginal 2%, it showcases that a growing number of companies recognize that investing in comprehensive security may be expensive, but it is a ton less costly (to both the company and its executive team) than a large breach.
From these results, it is apparent that a growing number of companies are investing in IBM security. Thinking they might be safe just isn’t good enough. They want to know they’re safe.
Wrapping up: Impressive performance
IBM isn’t the company it once was, and that’s a good thing. That old IBM was insular, didn’t interoperate well, and tended to act against its own best interests. The current IBM is massively improved. It’s a poster child for Linux, interoperability, and Open Source, and is more advanced than most on using its own products strategically, and it’s a clear leader in hybrid cloud and AI.
Given we are at the front end of what is likely to be a hybrid AI wave of implementations to minimize latency, datacenter loading, and get the most performance for the least cost, IBM is well positioned for a hybrid, AI, and more secure future.