Part of Sam Palmisano's truly excellent speech last week is really sticking with me as I look at the new IBM and suddenly realize that I, too, have been locked into looking at the way things were. Last week, I commented that I thought IBM was going to have to revisit having hardware that people actually touch, because in comparing Apple to IBM, this is one of the reasons Apple is more highly valued. However, IBM might actually be ahead of the curve here because it has been investing in apps and social networking tools instead. If the next market is to be led by companies like Facebook, then hardware not only isn't necessary, but it could be an expensive crutch.
So let's revisit last week's column on what Sam Palmisano could tech others, with regard to IBM touching people in this decade where the consumerization of IT - where 95 percent of workers are using tech they bought themselves - seems to be taking hold.
Challenging a Perception
The core perception I'm challenging is the one that says investors pump up the stock of hardware products they like. Palm peaked on the success of the Palm Pilot, Apple is doing wonders largely on the success of the iPad and iPhone, and clearly recovered because of the iPod - at least with these companies' investors when vertical on the hardware they loved. But for Palm and others, the effect wasn't long-lived. Apple is unique in that it held onto the popularity through an entire decade with hit after hit.
Other companies like Facebook, LinkedIn and, recently, Google and Microsoft, over a longer term didn't have much hardware. The Xbox hardly moved Microsoft's valuation much and the Google phone never really went anyplace. In fact, one of the very biggest spikes in the last couple of decades was Windows 95.
The key lesson here appears to be that investors and users connect a company to whatever it is they touch and it can be hardware, software or a service. In fact, even with Apple, it appears the sustaining driver for the company may not be the hardware, but the fact that it wrapped it with services and applications that make it compelling. Amazon is basically a retail service and it is doing very well, and Netflix, one of this year's stars, is a service as well, which further supports the premise that user hardware isn't a requirement.
Consumerization and IBM: The Apple Connection
IBM sucks at consumer goods. Yet, at one time, it did have a cheese grater (funny when you search on this you get a Power Mac), but since then, it has had a list of failures. The PCjr was the first I covered and it was surrounded by a series of reasonable decisions that killed it. IBM had the first smartphone, the Simon, more than a decade before the iPhone, but it died badly. And in the consumer market, IBM's PC did very poorly, so it exited that business. This led to the company having to sell off its PC division to Lenovo, which has been gaining market share ever since.
IBM's strength was the ability to focus on business needs. Even when it made typewriters, it wasn't focused on home use, just business buyers. It has never understood the consumer and if the market is moving to a consumerization model, doing desktop hardware would likely be suicidal for the firm.
So what IBM is doing now is developing apps and services to run on iPads. (It is interesting to note that in a recent storage briefing, the iPad was its preferred client for systems management.) That's an easy choice because IBM doesn't compete with Apple and the move allows them to dovetail off of Apple's success. It is also applying social networking capabilities to its business offerings through its social initiatives team. In short, IBM is recognizing its strengths and weaknesses and is applying those strengths to the problem, which has resulted in a non-hardware solution.
The Blind Spot
So I've changed my view. IBM is touching its clients with the software and services that revolve around the new IBM that is being built. I also see the advantage of using Apple as the preferred client since Apple doesn't compete with IBM and it has the platforms that are the most popular. However, this is not an overt partnership and IBM has partnered with Apple several times (Kaleida, Taligent) and they didn't end well. And working with Steve Jobs' Apple is a unique experience that Andy Grove will likely be happy to share should he (and he should) be asked.
So kind of like a tennis player with a bad backhand who avoids backhanded shots, IBM is avoiding consumer hardware, and this has expanded to all user hardware, because it isn't good at it anymore. Tactically, IBM is in good shape with this strategy, but the market is moving to a vertical integration model. Apple, particularly after Steve Jobs departs, is likely to buy into a business strategy. As a result, IBM could, unwittingly, be at the core of Apple's future success in IBM's market if it isn't careful.
So, in the end, I think the company is being appropriately creative in terms of using apps and social networking services to touch the end users, but I also think that, like Intel has done expanding research into the study of the consumer market and people, IBM needs to address its consumer blind spot so that, at some future point, it can make an informed decision about how to remain in contact with its end users.
Wrapping Up: Back to IBM's Core
As Sam Palmisano said during his talk: The key to success, according to Thomas Watson Jr., is to keep true to your core ideals, but also to be willing to change everything else. Core to this change is making sure you have adequate expertise in all related markets so that when this drives a decision to change, that decision can be an informed one. During a trend named "consumerization of IT," that means you'll need consumer expertise even if you don't yet have consumer products. Otherwise, you may not see the next change coming if it, as most of us suspect, comes from a consumer vector. Or Apple decides to take a bite out of IBM's pie.
I still think Sam's advice should be heeded by all of us, and I have come around to the position that IBM doesn't need a hardware client today. However, tomorrow always is coming and the only thing that is certain is change. So I also think Sam could likely take some from his old friend Andy Grove ("Only the Paranoid Survive") and put a little of his research investment in places where the firm has been afraid to look, just to make sure that the next change IBM misses - as Sam did point out, IBM did miss in the 1980s - doesn't come from that direction.