Charting IBM’s path after Think 2019

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After IBM’s Think conference this year in San Francisco, many are asking where IBM goes from here. The conference itself was a culmination of several other conferences rolled into one. And while the Science keynotes were absolutely stellar, IBM Think suffered from a clear identity. This may have more to do with IBM looking to establish a clear path forward. Let’s break down the components.

LOOKING BEYOND THE BASE

One of IBM’s most significant challenges is in looking beyond their base. While IBM has a strong, loyal base of customers, they need to attract a new generation of customers using a more modern approach to products and services.

It is hard for a company the size of IBM to change their culture on a dime. If, however, they are intent on bringing in a significant number of net-new customers, their internal culture needs to modernize as well. The new customer has moved beyond IBM’s traditional approach, but IBM’s culture has not moved nearly fast enough to keep up.

FOCUSING ON THE DEVELOPER

Over the past several years, IBM has made significant inroads to attracting a new contingent of developers. Their hackathons and efforts to build communities around the world has not gone unnoticed. Looking a bit further, IBM’s efforts to bring Bluemix to the fold were admirable and started off well. It presented a great model for modern application development. Bluemix has since waned in the general market and isn’t discussed as much beyond IBM’s base of customers.

That being said, IBM needs to look beyond the technology and consider the developer ecosystem (and community) beyond the IBM products and services. One of the ways IBM has engaged new sets of developers is with their IoT & Edge efforts. These efforts stand in stark contrast to the traditional IBM approach. But is it enough to make a difference? More on that in a minute.

BREAKING DOWN THE BIG OPPORTUNITIES

One of the biggest gems in IBM’s portfolio was Watson. Watson claimed to be a significant opportunity to bring AI to a business context to solve big problems and change the way companies operated. IBM’s acquisition of Weather Company made a lot of sense by adding weather data to Watson. The problem is that while Watson had a ton of potential and started off fairly well, it was challenging for enterprises to truly engage. In addition, since Watson’s launch, it has fallen somewhat stagnant. The two biggest things IBM could do to regenerate interest in Watson is to make it easier for enterprises to engage and modernize the technology.

Beyond Watson a number of other efforts including SoftLayer, Bluebox and Bluemix were also shining stars in IBM’s galaxy. SoftLayer showed significant promise to bring cloud-based solutions to the enterprise in a way few others were. Bluebox offered a solid add-on to build out IBM’s hybrid cloud solutions. While SoftLayer was kept separate from the core IBM culture, things were going well. Once it was assimilated, the interest and visibility decreased significantly. As mentioned above, Bluemix started off well, but has since fallen quiet.

PLACING BIG BETS

Generally speaking, companies do not make significant progress by making incremental improvements. Big bets are what ultimately allow a company to leapfrog ahead in multiple dimensions. And IBM has needed to make one of these big bets.

IBM just made a big bet with their intent to acquire Red Hat for $34 billion. This represents a significant premium for Red Hat and a significant portion of IBM’s market cap. This acquisition presents a number of opportunities, but also challenges including changes in product mix, culture and integration with other products and services. It is a very big and audacious bet for IBM and their CEO. If it plays out well, it would be a huge shift for IBM and potentially could address many of the challenges IBM has faced in the past several years. If, however, the Red Hat acquisition follows a similar path of past integration efforts, it could bring down the CEO along with putting a chilling effect on the culture within IBM.

LOOKING DOWN THE ROAD

There are a number of items that customers, investors and partners will be watching over the next 4-6 quarters.

Integration

IBM has struggled to capitalize on acquisitions post-integration. One aspect to watch will be how well IBM leverages what Red Hat brings to the organization andif they leverage Red Hat to break free of their traditional culture.

Economics

Big bets come with huge potential upsides, but also plenty of risk. Considering the sheer size of the Red Hat acquisition, investors will be watching the next several quarters more closely. Expect a higher degree of scrutiny placed on IBM’s financial performance as they move through the integration and ultimately benefit from the combined companies.

Customer Growth

The Red Hat acquisition has the potential to open new opportunities to a new and broader collective of enterprise accounts. IBM needs to quickly capitalize on leveraging the breadth that Red Hat brings to the base.

Software and Services

Post integration of Red Hat, IBM should have a robust and solid portfolio. Red Hat presents a significant opportunity to modernize the fundamentals that IBM is well known for.

Commercializing Research

IBM Research has a rich history of producing amazing technology that solves significant problems. At Think, the Research group showcased some of the incredible projects they are working on. One key for IBM will be how well they capitalize on commercializing their research and make it available to the public.

IN CLOSING

Overall, IBM will have its hands full in 2019 and going into 2020. They made a significant big bet with the Red Hat acquisition. While the acquisition itself presents a huge opportunity for IBM, it is not a slam dunk. IBM will need to carefully chart a path forward that leverages the benefits of Red Hat beyond just its products and customers. The next 4-6 quarters will be a critical period to watch for IBM.

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