Software is the lifeblood of IBM but CEO Ginni Rometty is ready to turn that business on its head to own the up-and-coming cloud computing market.
Not that she has a lot of choice.
On Monday, the company committed to spending $US1 billion to put its entire, huge software portfolio into the cloud, so that enterprises can buy that software as a service for a monthly fee, hosted on IBM’s cloud.
Previously, enterprises bought software in multi-year licenses and installed it on their own computers in their own data centres.
But cloud computing is changing how companies buy information technology, so it has to change how software companies sell it.
For Rometty, this transition is akin to the ones made by her predecessors like Lou Gerstner, who created IBM’s huge IT consulting business, or Sam Palmisano, who sold IBM’s PC business to concentrate on software.
Those plans worked: As of 2013, software was IBM’s second largest business and far and away the most profitable. It generated $US25.9 billion out of the company’s $US99.8 billion in revenues, with margins of 89 per cent compared to 48.6 per cent for IBM overall, points out the New York Times’ Quentin Hardy.
Software is also the key to IBM’s $US18.4 billion services business (at 31% margins), as customers hire IBM to help them with everything from installing it to troubleshooting it.
Now, none of that matters.
As companies shift from buying tech to renting it, IBM has found its revenues shrinking. Its 2013 was so soft, Rometty and her top execs didn’t take their 2013 bonuses.
She needs cloud computing to lead IBM back to growth and she’s investing like crazy to make it so. In addition to this $US1 billion, she’s made numerous acquisitions. She will also spend $US1 billion to turn IBM’s super-smart Watson technology into a cloud service, and will another $US1.2 billion to build up to 15 new data centres across five continents.
She has her work cut out for her. Major competitor Amazon is still the 800-pound cloud computing gorilla, according to market researchers.
Plus every other tech firm, from traditional cloud players like Salesforce.com, to companies like Microsoft, Google, HP and Oracle, are in the cloud market these days, too.