Where The Heck Is IBM?

by Gene Marks
Originally published at Forbes.com on 9/13/11.

All those well-known technology companies sure had a busy summer, didn’t they?

Microsoft bought Nokia’s phone business, purchased Skype and released its online version of Office.  Google bought Motorola’s phone division.  Apple announced a new version of its iPhone and saw its iconic CEO retire.  Facebook teamed up with Skype and now values itself at more than $80 billion.  LinkedIn had a successful public offering.  HP killed off its cell phone business and is now hinting it’ll do the same for its PC business.  They want to focus on software and services.  Like IBM.

Wait…who?  IBM?  Where the heck have they been?

Well, let’s see.

Just this week it was announced that WellPoint, one of the country’s largest insurers, will be using IBM’s super-computer “Watson” to help doctors figure out how to treat diseases.  IBM?  For some reason I never seem to hear much about them in the news.  Besides Watson unfairly trouncing humans on Jeopardy, one could ask if IBM even exists nowadays.  Are they still even a player in today’s technology industry?

This year, IBM celebrates its 100^th birthday.  In last year’s Fortune 500 list of top American companies, IBM was ranked #18 with revenues of $99.9 billion.  That was more than the revenues of Google (#92) and Apple (#35) combined.  Microsoft, by comparison, was ranked #38 with $62.5 billion in revenues.  In 2010 IBM was the seventh most profitable company in the country (Microsoft was fourth and Apple was eighth.)  By 2015, IBM expects to add about $30 billion more in annual revenues…a 30% growth forecast in just four years.  By comparison, the U.S. economy is projected to grow 1%.

Here’s more:  at the beginning of September, IBM was the fourth highest valued company by market cap in the U.S. (Apple and Microsoft were both valued higher).  IBM’s market cap at the time was $199.4 billion.  Google’s was $169.4 billion. Cisco was $85.8 billion. Since January 1 of this year, the company’s stock price has risen 11% while the Dow has fallen 5%.

What’s strange is that not only do I never really read that much about IBM but my clients don’t seem to buy any of their products.  I’ve never worked with an IBM employee or consultant.   I don’t sell their software.  I’ve never done business with them.  I don’t use their products.  Or have I?

IBM makes money in all sorts of different ways.  Services.  Software.  Licensing.  Financing.  Mainframes.  They want to get deep into the small business market but the reality is they sell primarily to large corporations and governments.  They own technologies that go into memory chips, lasik eye surgery, online shopping and “even data mining to optimally schedule maintenance of large infrastructure systems, such as energy grids, buildings, hospitals and transportation departments.”

IBM is a quiet giant.  Which is the way they’ve always been for the past hundred years.  They don’t seek the headlines.  They’re not out to be sexy.  And in a difficult economy, and a rapidly changing technology industry, a small business owner like me can learn a lot from them.

For starters, IBM sells almost entirely to businesses.  Think about it – when was the last time you bought an IBM product?  There was once a time where consumers could buy their computers and laptops, but this officially ended with the sale of their ThinkPad division to Lenovo in 2005.  This is why they stay out of the limelight.  Sales of gizmos and gadgets to consumers always get the most media attention.  But along with that market comes exposure…both good and bad.  Consumers are fickle and products succeed and fail more easily.  In the changing world of consumer likes and dislikes a lot of products aren’t even given the chance to succeed.  I’m relieved that my company sells directly to businesses, mostly small and medium sized companies.  And, as IBM surely has found, there are lot of advantages to do doing this.

Business contracts can not only be extremely profitable, but very stable.  Businesses make long term commitments in each other.  Decisions are made less on emotion and more on return on investment.  IBM’s customers invest millions with them to create and support infrastructures that will last for years.  Once a decision like this is made, it’s hard to turn back.  Everyone has the incentive to work together to figure out problems and maximize their profits.  Businesses tend to pay their bills too.  They have budgets.  They plan.  In many respects it’s just easier and more efficient to do business with businesses.  That’s why IBM does this.  I’m going to continue to do the same

As a technology company, IBM does not get caught up in selling lots of little devices or hardware.   Of course they sell mainframe systems and related accessories.  But the reason behind this is to support their software development, financing and services.  It’s very, very difficult to make money selling hardware.  Just ask HP.  It’s too commoditized.  It’s too competitive.

IBM is heavily invested in software because, according to venture capitalist Marc Andreesen, software is eating the world.  “In today’s cars, software runs the engines, controls safety features, entertains passengers, guides drivers to destinations and connects each car to mobile, satellite and GPS networks.  Wal-Mart uses software to power its logistics and distribution capabilities.  And the success or failure of airlines today and in the future hinges on their ability to price tickets and optimize routes and yields correctly—with software.  Oil and gas companies were early innovators in supercomputing and data visualization and analysis, which are crucial to today’s oil and gas exploration efforts.”  These industries are using IBM’s software.  This is what IBM does.

And what have we learned about software?  It requires service.  That’s because software needs to be installed, configured, customized, changed and then taught to users.  And then it needs to be integrated with other software systems.  And after all that’s done, software needs to be supported so that it can continue to run on new devices, operating systems and hardware platforms.  IBM does this too.

IBM is IBM because of their investment in technology.  For the 18^th year in a row, IBM ranked #1 in companies receiving U.S. patents with 5,895 granted.  The company expects to spend $20 billion in acquisitions between 2011 and 2015.   Just this year they’ve invested heavily in data analytics and a new hybrid cloud solution.  IBM’s not alone in this – all good technology companies invest heavily in research and development.

Using IBM’s model, I’m going to focus on software and services and resist the temptation to become an IT firm who sells hardware.  We’ll make our money from sales margins and, most of all, from services.  Because our clients too will need their software installed, configured, customized, supported and integrated with other systems.  And their people will always need to be trained in how to use their software productively.

This teaches me something.  Business is tough this year and the economy is limping.  But I’m sinking what few dollars I have into a new newsletter platform to get better information delivered to my clients more efficiently.  And I’ve decided to spend a large amount of money (for me) to create a state-of-the art print and electronic training manual with video for some of the products we sell because there seems to be a market need for it.  Like IBM I plan to reinvest a significant portion of my profits each year in new projects, new technologies, new tools that will help my clients or, at the very least, help my people help my clients.

The other thing I appreciate about IBM is their product mix.   Per this 4Q 2010 analysis IBM’s services account for about 50% of their revenue, with the remainder of revenues split almost evenly between hardware and software sales.  They sell to the auto, pharmaceutical, energy, transportation, and many other industries.  They sell to governments all over the world.  They operate in hundreds of countries.   This is what good companies do.  They spread the risk.  They don’t put all of their eggs in one basket.

I’ve been lucky in this regard.   We have hundreds of clients in many different industries.  Most of them are smaller companies.  If one project fails it doesn’t cripple us.  If a client is angry with us, we try to learn but we’re usually not so invested that we can’t survive if they go somewhere else.  In this world, you can’t please everyone.  Where bugs and errors and bad code from developers proliferate, I’ve become accustomed to these headaches.  My industry has plenty of success stories…and an equal number of failures.  Remember OS/2 Warp?  Like IBM, I need to make sure I’m not betting too heavily on any one technology to succeed.

Surprisingly, I don’t find IBM listed on any of the popular “Best Places To Work” surveys.  I read that they have a loyal and happy workforce.  But I also read that they offer less benefits than the competition. Being the Internet, I’m not sure what to believe.  But it’s disappointing that a company as large and old and respected as IBM is not consistently on the top of all of these lists.  They should be.  They’re not doing enough.

Even from this I learn.  My company isn’t big enough to make any ‘best places to work’ list.  But if I’m going to focus on services then my company’s success will be on the shoulders of the people working for me who are providing those services.  To that end I’ll overpay.  I’ll provide the best benefits that I can.  I’ll find the best people that I can afford and treat them well.  Long hours are part of any job in this industry.  But a good work-life balance is more important.  IBM may be around for another hundred years.  But I won’t.  Life is too short to kill oneself, or your employees, over a couple of bucks.

So where the heck is Big Blue?  After a hundred years, they’re still one of the main players.  And I’m still learning from them.

Besides Forbes, Gene Marks writes weekly for The New York Times and frequently for The Huffington Post and American City Business Journals.  He runs a ten person consulting firm outside of Philadelphia and can be followed on Twitter.