ChannelWorld

Why the Big Blue Still Matters

Preston Gralla is the contributing editor for Computerworld.com and the author of more than 35 books, including ‘How the Internet Works’.

To read the headlines in the business and technical press during the last several years, you’d think that the once world-beating IBM had fallen off the face of the earth. Google, YouTube, Twitter, Facebook, Apple, Microsoft — those seem to be the names that garner all the publicity. IBM comes off at best as an afterthought, and at worst as a company slipping into dotage, about to fade into oblivion, along with other brands that were once well-known, such as PanAm airlines and Woolworth’s department stores.

You might be surprised, then, to learn that IBM is flying high these days, a success as much driven by its forward-thinking services and software businesses as by its ability at the same time to milk its old cash cow, the mainframe line. Even as the rest of the economy tanked, IBM’s second-quarter net income in 2009 was $3.1 billion, up 12 percent from a year earlier. And it’s as well positioned as any technology company for reaping benefits from big changes in technology in the next decade.

The company’s recent launch of LotusLive iNotes, a cloud-based e-mail, calendaring and contact management system, shows why IBM still matters. IBM recognizes that for businesses of all sizes, cloud computing is the future, and it plans to be there in a very big way. LotusLive iNotes aims at taking away business from Microsoft’s Exchange, as well as users of Google Apps Premier Edition. During the past years, IBM would have sold the hardware that runs a system like LotusLive iNotes, rather than selling it as a service. But the company realized a decade ago that its future was in software and services rather than hardware, and it began selling off much of its lower-margin hardware businesses, while retaining mainframes. Those moves have paid off handsomely and could be even more profitable if companies do indeed opt for a cloud-based future.

IBM’s success has clearly gotten under the skin of its competitors, notably Microsoft, whose CEO, Steve Ballmer, went so far as to criticize IBM’s move away from hardware. He told The New York Times that “IBM’s footprint is more narrow today than it was when I started. I am not sure that has been to the long-term benefit of their shareholders.”

That’s wishful thinking on Ballmer’s part, because he’s worried about IBM’s competition in cloud-based computing. IBM is also well-positioned to take advantage of another long-term trend in IT — greening IT infrastructures. The pressure to go green will only grow in the coming years, with the potential for regulations governing carbon emissions. A year ago, IBM launched its green consulting practice, and it didn’t stop with green IT. The practice also focuses on using technology to green the rest of an enterprise as well, including how to make a product’s entire life cycle more green. It also has a ‘Green Sigma’ consulting service that applies the Lean Six Sigma method of improving efficiencies to corporate energy and water use.

At the same time that it’s looking ahead, the company also reaps benefits from older big-iron hardware. For example, when Bernie Madoff powered the computing infrastructure of his multibillion-dollar Ponzi scheme, he turned to a trusty IBM AS/400 to cook the books. OK, scratch that example — we can only hope that Ponzi schemes aren’t a growth business. But IBM mainframes power countless Fortune 500 companies, and are also in widespread use in education and government as well.

So IBM seems to have the best of both worlds, getting old-time profits from old-time technology, while riding the wave of cloud and green computing. It doesn’t sound like a bad business to me. I’ll take profits over publicity every time — and I think IBM will as well.