By Troy Vetter
Think 2019 was held in San Francisco this year, a change from Las Vegas, where it’s been held in years past. Maybe it was me—the sea air or the change of venue—but my takeaway from the speakers, the sessions, and the conference overall was more invigorated and hopeful than what I experienced before. The combined effect of the announced merger and the executive hints at more meaningful and lasting changes to IBM was refreshing and encouraging.
For me, it is impossible to travel to San Francisco—my favorite city on the west coast—without being reminded of its history and place in our westward expansion and its current status as a shining beacon to the American experiment of the 21st century. But this wasn’t always a foregone conclusion. San Fran has had some very difficult periods, for example in 1906 when an earthquake shook the city’s foundations so severely that water and gas mains burst and started fires that ended up burning down 80% of what was then being called the “Paris of the West.” This was a devastating blow to a population of immigrants and emigrants that had come to San Fran to build on their dreams, not start them from scratch. Undeterred by the sheer enormity of the task before them, however, the people of San Fran almost immediately set out to rebuild. With hard work and a combined vision, they managed to build a city that was even better than the one that had been destroyed.
This story is a great allegory for IBM. IBM began in 1911 and throughout the 20th century matured and grew from a company that supplied time clocks, punch card machines, and industrial scales to a technology company that helped us reach the moon! Just as San Fran embodied the Manifest Destiny of the 19th century, IBM was the poster child for two hallmarks of the 20th century: American Ingenuity and the Technological Revolution.
Although we were convinced that time would stop with Y2K, it didn’t. Yet the story of IBM in the 21st century has not been quite so encouraging. From February 2012 to June 2013, IBM was trending and often trading at $200+ a share and the sky was still the limit, figuratively as well as literally when IBM Cloud became a real thing with its acquisition of Softlayer in June 2013 for about $2 billion. Although this acquisition will probably never be written up as exemplary, it was still a good deal for IBM. It got them into a game/market that was previously unavailable to them. THE CLOUD.
Since then, IBM has repeatedly faltered and its stock has lost nearly half its value, recently dropping as low as $115. While this isn’t exactly a fire sale, it’s not a big stretch to consider that one of the premier companies of the US’s 20th century economy may not make it to the third decade of the 21st.
To solve that problem and push for a more meteoric trajectory, IBM has taken on what I would consider a Moon Shot. The term refers to the challenge that President Kennedy made to the US people in late 1962, declaring it was imperative that we be FIRST to the moon by the end of the decade. He admitted that it would be very expensive and extremely dangerous to accomplish this, but our destiny was leading us to space.
IBM’s Moon Shot (remember the qualifiers: 1. very expensive and 2. extremely dangerous) is its recent acquisition of RedHat. RedHat was trading for about $116 a share when IBM announced it would be buying it at a premium of $190 a share, totaling roughly $34 billion. This qualifies as very expensive. Given its continued fall in market share and brand awareness, IBM buying and then absorbing a 21st century headliner was also more than a little dangerous. Cultures will clash, products will converge or be eliminated, services and reputations will be put to the test.
RedHat had revenues of about $3 billion and sold to IBM for over an 11x multiplier. How will IBM make a return off of that kind of purchasing exuberance? The answer: they have to use this as a qualifying event that allows them to take the actions they know are needed but have been afraid to do. Just like the San Franciscans in 1906 after the fire, Ginni and company need to rebuild and reinvest in a new “city” using their past glory as inspiration, not as a blueprint. The IBM of the 20th century is gone and it cannot—and should not—return. A new IBM has to be built with innovation, technology, and a culture that is forward looking and inspirational. Letting the RedHat team take a much more prominent position within the executive halls would be a good first step in the transformative process.
Think 2019 hinted at forward progress on this idea of transformation. The main sessions conveyed a practical and pragmatic message, acknowledging IBM’s strengths and committing to building on their foundation of strong technology and innovation rather than trying to become the next big thing, which is an impractical goal for a company that started over 100 years ago.
In a series of blogs that we will be releasing over the next few weeks, we will detail some of the key impressions and new offerings that have us excited about the new IBM.
- ICP for Data
- Watson – AI
To IBM in the 21st century!