IBM’s PartnerWorld 2016 in Orlando, Florida was packed with over 1,400 IBM partners from 82 countries. The conference covered a wide breadth of topics, and each of the topics fit into the broader picture of IBM’s continuing transformation. IBM’s recent acquisitions and investments also paint a clear picture of company’s future.
Charles Flint founded IBM in 1911, and it rose to the top of the technology food chain over the course of 105 years. However, the changing face of technology spurred the company to pivot from a hardware and software services company to more profitable pursuits in recent years. IBM feels the strategic transition is imperative to foster renewed growth after 15 sequential quarters of declining revenues.
“IBM is a cognitive solutions and cloud platform company, and everything we do is now focused on that. Those are not two separate things. They are one coin with two different sides,” said Ginni Rometty, Chairman of the Board of Directors, President and CEO of IBM.
The hardware segment is beset by challenges on all sides; the cloud, commoditization, ODM/whitebox manufactures and disruptive new technologies are all placing intense pressure on the profitability of the world’s largest storage companies. The leaders of the industry have all acknowledged the threats to their business models, but are embracing different approaches to battling the steady and pervasive declines. IBM has taken the divergent path by rebuilding itself on top of (what it terms) a digital foundation.
“I tell you that strategy of a digital foundation because it’s a stark contrast, I think, to what some of our competitors are doing. You see two of them coming together on yesterday’s business model, and you see another one breaking up on yesterday’s business model,” Rometty said in a thinly veiled reference to the Dell/EMC merger and the HP split.
Rometty stated that the next shift for IBM is to the cognitive era, and while it may be the most disruptive, it presents the best chance for differentiation. Let’s examine a few pieces of the IBM strategy.
IP, Investments And Partnerships
It all starts with IP, which comes to a company through internal development, acquisitions and partnerships. IBM employs all three methods to bolster its IP treasure chest. In fact, IBM has filed for more U.S. patents than any other company for23 consecutive years; it filed 7,355 patents last year alone.
Many of these patents are the fruits of billion-dollar investments. IBM gained access to the lucrative Texas Memory Systems portfolio in 2012, and then announced a rolling $1 billion flash investment in 2013. These investments fuel its customized FlashSystem architecture, andcollaboration with Micron allows IBM to extend differentiating features to its customers.
The company also expanded its Spectrum Storage SDS platform with an additional $1 billion investment last year, which is money wisely spent considering that IBM is the leader in the software defined infrastructure segment. IBM purchased Cleversafe last year for an undisclosed sum, which allows it to infuse the Spectrum Scale platform with object storage services. This key component also allows IBM to manage on-prem and cloud storage as one cohesive unit, which is a boon to a company rebuilding itself on cloud-based platforms.
IBM expanded its IoT presence with an additional $3 billion investment in its Internet of Things unit, and acquired several cloud companies, such as StrongLoop and Meteorix, in 2015. The extensive patent portfolio also allows IBM to engage in other pursuits and collaborations, such as WD’s recent acquisition of 100 IBM patent assets and a cross-licensing agreement between the two companies.
Patents and IP are the lifeblood of any tech-centric organization, and with over 67,000 patents (as of 2012), IBM has more of them pumping through its veins than any other company in the world.
IBM’s storage segment represented 32 percent of it overall revenue in 4Q2105. However, IBM’s annual revenues for storage hardware have declined by 35 percent over the last four years, so it is clearly exhibiting the traditional characteristics of a secular decline.
Flash is a key growth segment for IBM; it represents a $14 billion dollar opportunity that is growing at a 9 percent CAGR. According to 451 Research, IBM is one of the top three flash providers (along with EMC and HPE), and it shipped more flash capacity than its competitors did in 2014 (according to IDC). The high volume underlines how important the flash segment is to IBM as the transition to flash continues in the enterprise.
Some have opined that IBM may exit the storage business, but it still offers tape and mainframes as core products, which indicates it will continue to invest in profitable segments even in the face of revenue declines. This strategy can pay off, as the mainframe and Power segments have enjoyed four quarters of steady growth.
The successful FlashSystem products are very competitive with other all-flash offerings and are poised to extend IBM’s penetration into the AFA segment. The signs appear to indicate that IBM intends to stay in the storage business, but it will likely devote the majority of its resources to the all-flash, hybrid and SDS (Software-Defined Storage) segments—it also recently expanded its hybrid storage offerings.
“We have built the world’s largest enterprise security company,” Rometty declared during her keynote address.
IBM Security delivered $2 billion in revenue to IBM and grew 20 percent YoY, which is the second year of double-digit growth for the lucrative division. IBM’s Security division has penetrated 20 segments of the security industry, and the company touts that it is the leader in each of the 20 segments. IBM’s security offerings permeate every level of the organization, from the encryption/decryption power of its z13 mainframe systems to the expansive products and services in the IBM Security portfolio.
A startling statistic noted during the conference is that the average security breech goes undetected for 256 days, during which time the infiltrator has free reign within the system. To counter the new threats the security industry is morphing from threat detection via signature-based identification to proactive and predictive monitoring and threat interception powered by analyzing user behavior, among other factors. This plays perfectly into IBM’s core analytics and cognitive computing competencies.
The security market is valued at $70 billion, and is growing at a 7 percent CAGR. This explosive growth spurs IBM’s continuing investment in this flourishing segment.
“We are now the world’s largest leading big data analytics company, $18 billion last year. We have now brought the cloud to the enterprise—public, private and hybrid,” Rometty stated.
IBM’s expansion into the cloud is clear, and for good reason: a recent IDC survey said that 80 percent of enterprise IT organizations will commit to hybrid cloud architectures by 2017. No one segment will dominate in IBM’s view—the company sees a future where public and private clouds coexist with traditional on-prem IT. Recent studies predict the hybrid cloud will actually outgrow the traditional public cloud over the next few years.
IBM offers multiple entry points to the cloud, including its SoftLayer public cloud services (IaaS), Bluemix private cloud (PaaS) and CMS (SaaS) solutions. IBM offered 65 new cloud services and added 8 new data centers around the world in 2015. The Bluemix offering is increasingly popular; it surpassed two million users last year and is growing by 15,000 new customers per week.
IBM sees opportunity in offering cloud services because more than 60 percent of enterprises building hybrid clouds will purchase workload-centric cloud management solutions by 2017.
Cognitive Computing, Watson
The theme of IBM’s PartnerWorld 2016 was “Leading together in the cognitive era,” which is indicative of IBM’s increasing focus on its cognitive solutions.
“It [Watson] will fundamentally change a company, a profession, and an industry…I can tell you that because I know it is already changing us,” Rometty explained.
IBM Research has developed Watson over the course of a decade, and it is currently in 36 countries and within 80,000 programs developed by 500 companies. IBM has made Watson available on Bluemix, where users can easily compose applications that utilize its cognitive functionality. There are currently over 3.2 billion Watson API calls per month, which is impressive in light of the relatively short timespan it has been available to the public.
Over 6.4 billion sensors are connected to the internet, and harnessing that data and providing actionable insights is the key motivator behind IBM’s analytics and cognitive computing programs. IBM continues to expand upon its leadership position in the analytics market while utilizing it as a springboard into lucrative new segments.
For instance, IBM established its Watson Health division just last April, and since has pumped over $4 billion in health-related acquisitions into the new business unit, with the most recent being its Truven Health Analytics acquisition for $2.6 billion (this week). Truven Health expands IBM’s reach into the healthcare analytics market tremendously—it handles data for over 300 million patients.
The enterprise IT industry is undergoing one of the largest migrations in history as more data moves to the cloud. IBM obviously sees the writing on the wall and is offering a full suite of cloud and hybrid cloud solutions to adjust to what it perceives as the new normal.
The IBM strategy obviously contrasts with the approach taken by Dell and EMC, which are coming together to form a monolithic company primarily focused on servicing on-prem deployments, though they are working in partnership with other cloud providers. The integrated power of the Dell/EMC combination holds its own advantages, particularly in economies of scale and sheer reach.
HP’s approach serves as the polar opposite to the Dell/EMC strategy; it severed itself into two entities in an attempt to survive the coming onslaught of the cloud and ODM/whitebox vendors.
IBM believes that cognitive computing will provide the differentiator for its partners and customers, and that the company’s radical reinvention of itself around bleeding edge cloud-based technologies will win the day. IBM is taking perhaps the most drastic measures to ensure its viability in the future of computing.
IBM is working furiously to adapt and avoid being disrupted by the cloud. Embrace the cloud or die seems to be the tenor of the industry at this point, and time will tell if IBM’s approach wins out.
IBM’s Transition To The Cloud Platform And Cognitive Computing Solutions
- Meet the Man Who Believes the Google-Facebook Duopoly Is Ripe for Disruption
- PlayStation Plus Prepaid Membership Card Now Available in India
- You Can Now Trade-In GTA V, FIFA 18, Call of Duty: World War 2, and other PS4 Games at Games The Shop
- UPDATE — BroadSoft Awarded 2017 Frost & Sullivan Latin America Cloud Telephony and UCC Services Platform Provider of the Year
- Former Disrupt Battlefield competitor Coronet automates security for SMBs in latest update