IBM Passes Microsoft in Market Cap, Forms VM Alliance

Rob Enderle
Slide Show

Spending Spree: IBM's 2010 Acquisitions

This is turning out to be a historic year. A little over a decade ago, Microsoft was unbeatable and both Apple and IBM, which at one time were vastly larger, were looking longingly at Microsoft's backside. Over the past 12 or so months, first Apple and then today IBM passed Microsoft in market capitalization on different vectors. Both did so not by trying to be a better Microsoft, but by being a better Apple and IBM.

 

We'll leave Apple for another time and focus on IBM with an emphasis on its latest alliance with BMC, Eucalyptus Systems, HP, Intel, Red Hat and SUSE on virtualization.


IBM Passing Microsoft


Watching IBM pass Microsoft was bittersweet for me. You see, I was at IBM when Microsoft passed that company as part of a team trying to separate IBM software so that it could compete more effectively. It was our belief that IBM simply couldn't keep up unless software was as free of hardware as Microsoft's was. Unfortunately, our effort was in vain and Microsoft emerged the larger and more profitable firm. It never would have occurred to us that putting software in charge of hardware, as IBM has recently done, might accomplish the same thing. We also didn't anticipate that Microsoft would forget so completely its consumer roots and bleed much of its valuation to Apple and Google. That's because Apple was struggling at that time and Google didn't even exist yet.


IBM's short brush with death that decade caused the firm's rebirth into a vastly less complex and focused company, which painfully climbed up the success ladder rung by rung to once again pass Microsoft in valuation. While Microsoft's success led to being fished by a huge number of emerging technology companies hungry for good talent and willing to pay for it, the company lost track of its entire consumer side, which led to its value bleeding like water.

 


Part of this is that IBM was able to step away from distractions in much the same way Apple did, but it focused on the corporate market while Apple focused on consumers. But part of this was also the fact that IBM was competing as a company rather than a loosely tied group of feuding divisions. As a result, Sam Palmisano and his executive team deserve a hardy congratulations for a job very well done.


Open Virtualization Alliance


Part of IBM's success is its ability to partner where needed to address competitive threats and market opportunities. One of the most recent examples of this is the Open Virtualization Alliance made up of BMC Software, Eucalyptus, HP, Intel, Red Hat, SUSE and, of course, IBM. Positioned against similar efforts like those from Oracle, which are designed to prevent vendor and technology choice in the virtualization market, this alliance is driving technologies like the KVM (Kernel-based Virtual Machine) into the market and is ensuring that customers have a choice. The combination of Intel, IBM, HP and BMC alone represent one of the most powerful technology blocks in the world.


Benefits of the alliance include vendor choice (granted, it's primarily among the existing partners), lower costs because buyers can bid these vendors against each other, and interoperability because all of these partners recognize the need to not only work together for the good of the customer, but to ensure interoperability and make sure no one vender gets enough power to lock the others out.


With solutions wrapped with a series of enterprise tools starting with IBM's own Tivoli solutions and System Director, and extending to Red Hat's Enterprise Virtualization suite, this is an impressive group offering harkening back to the days when IBM largely founded the technology market. Supporting both Linux and Windows, solutions like this have allowed IBM to seek new heights and once again emerge as one of the most well-regarded IT vendors.


Wrapping Up


It is just amazing how much IBM has improved over the last decade or so. Having gone from near obscurity in the early 90's to once again become a power that is valued higher than the firm that was thought to be its successor - Microsoft - would have been thought impossible. Yet IBM did it and, I imagine, there is much well-deserved pride being felt by my former teammates this week.

 

Well done folks, well done.



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