“We divested Dell services. We divested [VMware’s] vCloud Air, and really began to clean up the portfolio to drive forward Michael [Dell’s] vision that the world is going to need an essential infrastructure company. It might not be the sexiest play in IT, but absolutely at the end of the day, all this stuff has got to run on something. We’re proud to be that something.”
Original source: Dell Technologies’ “essential infrastructure” strategy
There is no doubt, though, that there are signs of progress at IBM, which would not comment on its financial picture before the release of the earning report. So much attention is focused on the company’s top line because revenue is the broadest measure of the headway IBM is making in a difficult transformation toward cloud computing, data handling and A.I. offerings for corporate customers.
The new businesses — “strategic imperatives,” IBM calls them — now account for 45 percent of the company’s revenue. And though it still has a ways to go, IBM has steadily built up those operations — and gained converts.
Over all those quarters, there hasn’t been that much good analysis of “what went wrong” at IBM in so much as I haven’t really read much about what IBM should have been doing. What did we expect from them? What should they be doing now and in the future? I don’t know the answers, but I’m damn curious.
“State your deal.”
Since the mid-2000’s, all tech companies have been shit on for not getting to and dominating public cloud faster (there are exceptions like Adobe that get lost in the splurty noise of said shitting on). Huge changes have happened at companies HP/HPE and Dell/EMC/VMware (where I work happily at Pivotal, thank you very much), and you can see Oracle quarterly dance-adapting to the new realities of enterprise IT spending.
For the past 8 or 10 years I’ve had a rocky handle on what it is that IBM sell exactly, and in recent years their marketing around it has been fuzzy. Try to answer the question “so what is it, exactly, that IBM sells?” A good companion is, “why do customers choose IBM over other options?”
I’ve been a life-long follower of IBM: my dad worked at the Austin campus, it was a major focus at RedMonk, and, you know, just being in the enterprise tech industry gets your face placed facing Armonk frequently. I feel like I know the company pretty well and have enough of an unnatural fascination to put up with spelunking through them when I get the chance; IBMers seem pleasantly bewildered when the first thing I ask them to do is explain the current IBM hierarchy and brand structure.
But I couldn’t really explain what their deal is now. I mean, I get it: enterprise outsourcing, BPaaS (or did they sell all that off?), some enterprise private cloud and the left over public cloud stuff, mainframe, a bunch of branded middleware (MQ, WebSphere, DB2, etc.) that they seem forbidden to mention by name, and “Watson.”
There are clear products & services (right?)
When I’ve been involved in competitive situations with IBM over the years, what they’re selling is very, very straight forward: outsourcing, software, and a sense of dependability. But the way they’re talked about in the press is all buzzwordy weirdness. I’m sure blockchain and AI could be a big deal, but their on and off success at doing something everyday, practical with it is weird.
Or, it could just be the difficulty of covering it, explaining it, productizing, and then marketing it. “Enterprise solutions” often amounts to individually customized strategy, programs, and implementations for companies (as it should, most of the time), so you can’t really wrap a clear-cut SKU around that. It’s probably equally hard to explain it to financial analysts.
So, what’s their deal?
Anyhow, I don’t come here to whatnot IBM (genuinely, I’ve always liked the company and still hope they figure it out), but more out of actual curiosity to hear what they should have been doing and what they should do now. Here’s some options:
The first option is always “stay on target, stay on target,” which is to say we just need to be patient and they’ll actually become some sort of “the business of AI/ML, blockchain, and the same old, useful stuff of improving how companies run IT.” I mean, sure. In that case, going private is probably a good idea. The coda to this is always “things are actually fine, so shut the fuck up with your negativity. Don’t kill my vibe!” And if this it true, IBM just needs some new comms/PR strategies and programs.
You could say they should have done public cloud better and (like all the other incumbent tech companies except Microsoft), just ate it. What people leave out of this argument is that they would have had to spend billions (and billions) of dollars to build that up over the past 10 years. Talk about a string of revenue loosing quarters.
As I’m fiddling around with, they could just explain themselves better.
They should have gotten into actual enterprise applications, SaaS. Done something like bought Salesforce, merged with SAP, who knows. IBM people hated it when you suggested this.
The always ambiguous “management sucks.” Another dumb answer that has to be backed up not with missed opportunities and failures (like public cloud), but also proving that IBM could have been successful there in the first place (e.g., with public cloud, would Wall Street have put up with them loosing billions for years to build up a cloud?)
I’m sure there’s other options. Thinking through all this would be illustrative of how the technology industry works (and not the so called tech industry, the real tech industry).
(Obviously, I’m in a weird position working at Pivotal who sells against IBM frequently. So, feel free to dismiss all this if you’re thinking that, now that you’ve read this swill, you need to go put on a new tin-foil hat because your current one is getting a tad ripe.)
How all these unprofitable companies sustaining high valuations:
bending reality today has three elements: a vision, fast growth, and financing.
A few firms other than Amazon have defied the odds. Over the past 20 years Las Vegas Sands, a casino firm, Royal Caribbean, a cruise-line company, and Micron Technology, a chip-maker, each lost $1bn or more for two consecutive years and went on to prosper. But the chances of success are slim. Of the current members of the Russell 1000 index, since 1997 only 37 have lost $1bn or more for at least two years in a row. Of these, 21 still lose money.
The single biggest one is the move to public cloud, and this is where Docker is focused today. This is the number one area that we are putting all our investment in. We have this great container platform that allows you to do a lot of things, but just like any company, we need to pick an area of focus and for us, helping customers take legacy apps, moving them to the Docker platform, and allowing them to run it on any infrastructure because it’s hybrid cloud world, does a couple of things — it drives massive savings for customers, typically 50 percent cost reduction in a cost structure, but it also opens up real opportunities for the customer and our partners to innovate within that environment
Also, this is an insanely good example of a fluffy leather chair conference interview, plus, The Channel filter.
Where does the 50 percent savings come from? A few different areas. The biggest is, honestly, in the mass reduction in number of VMs [virtual machines] and that’s not good or bad, it’s just the reality. The other is that there is a massively increased density factor on compute, and so we can put a lot more workloads on a fewer number of servers. If you are a [company like] Nestle, and you are going to take a bunch of information and business systems and move it to the public cloud, doing a one-to-one move is not necessarily all that advantageous.
When I joined Docker I had a good conversation with someone over at Microsoft that said ‘I’d love to partner with you.’ His view was, the more people move to Docker, the more business they get on Azure. In fact, for every dollar we generate, he generates $7.
Momentum and the EBIT(A) chase:
we’re growing at 150 percent-plus year over year and expect that to continue for at least another few years. I’m hoping to get to profitability in mid-2019, and that’s important
I was CEO of the Wireless Industry Association and I was proud of the job that I did. But the least proud moment of my public policy life was when I opposed the commission’s efforts to allow people to take their phone numbers with them when they switched from, say, AT&T to T-Mobile. [When arguing against this policy], I couldn’t go out and say, “We think it’s a really bad idea because in the current situation consumers are trapped with their carrier and can’t leave us without giving up their phone numbers.” That’s not a real winner. So the argument I made was, “This is going to take money that should be spent on infrastructure and expanding connectivity.” I regret that argument. Saying, “It is going to slow down our incentive to invest,” is everybody’s first line of defense. It’s balderdash. The reason you invest is to get a return. Companies don’t say, “Well, I’m not going to invest because I might trigger some regulations.” Their question is: “Am I going to make a return off of this?” Broadband is a high-margin operation. You can make a return off of it. The facts speak for themselves. Since the Open Internet rule was put in place, broadband investment is up, fiber connections are up, usage of broadband is up, investment in companies that use broadband is up, and revenues in the broadband providers are up, because people are using it more. – Tom Wheeler
There’s two good points here:
1. When people have a high churn rate between services, it may be annoying from a “lazy”/predictable perspective, but it means there’s more chances to sell old and new things to them when they switch.
2. Complaints from companies that amount to “this new regulation/tax/etc. will make us not want to invest” are largely crap. Companies have to invest in new businesses or they die. Whatever the friction, they’ll figure it out, and if they can’t, they can die so that new players can have a go. Businesses don’t need to be eternal.
At the top of the year, companies are setting their IT agendas. Most high level executives seem to be lusting for “digital transformation,” but that phrase is super-squishy. In my Register column this month, I offered my advice on what it should be: simply “digitizing” existing, manual work-flows by perfecting how you do software.
What do these opportunities look like in businesses? Here’s a chunk that cut out of the piece that provides some examples:
A project to “digitize” the green card replacement program in the US provides a good example of the simple, pragmatic work IT departments should be curating for 2017. Before injecting software into process it’d “cost about $400 per application, it took end user fees, it took about six months, and by the end, your paper application had traveled the globe no less than six times. Literally traveled the globe as we mailed the physical papers from processing center to processing center.”
Afterdiscovering agile and cleaning up the absurd government contracting scoping (a seven year project costing $1.2bn, before accounting for the inevitable schedule and budget overruns), a team of five people successfully tackled this paper-driven, human process. It’s easy to poke fun at government institutions, but if you’ve applied for a mortgage, life insurance, or even tried to order take out food from the corner burger-hut, you’ll have encountered plenty of human-driven processes that could easily be automated with software.
After talking with numerous large organizations about their IT challenges, to me, this kind of example is what “digital transformation” should mostly about, not introducing brain-exploding, Minority Report style innovation. And why not?McKinsey recently estimated that, at best, only 29% of a worker’s day-to-day requires creativity. Much of that remaining 71% is likely just paid-for monotony that could be automated with some good software slotted into place.
That last figure is handy for thinking about the opportunity. You can call it “automation” and freak out about job stealing, but it looks like a huge percentage of work can be “digitized.”
“Too often, organizations are myopic. They only look for growth in the customer base they already serve. But by looking for nonconsumers and exploring what they are trying to accomplish — rather than focusing on their personal characteristics, purchasing patterns, or product preferences — organizations can discover the potential for new growth.”
The Docker forking hoopla is providing an interesting example, in realtime, of how open communities figure out monetization.
#RealTalk: Open communities are not immune to C.R.E.A.M.
One of the most important decisions an open source community makes is where and how it will make money. I always liked Eclipse’s take because they’re mega clear on this topic; the ASF plays this goofy game where they try really hard to pretend they don’t need to answer the question, which itself is an answer, resulting in only the occasional quagmire; Linux has a weird situation where RedHat figured out This One Cool Trick to circumvent the anti-commercial leanings of the GPL; MySQL has a weird dual licensing model that I still don’t fully grasp the strategic implications of; RIP Sun.
The role of standards plays another defining role when it comes to monetization. Think of Java/J(2)EE, vs .Net, vs PHP (a standard-less standard?), vs HTML and WS-*. vs, the IETF/ISOC RFC-scape that defines how the internet works. While not always, by far, standards are often used tactically to lesson the commercial value (or zero it out completely) of any given component “lower” in the stack, pushing the money “up” the stack to the software that implements, uses, or manages the standard. Think of how HMTL itself is “of no value” (and was strategically pushed that way early on), but that the entire SaaS market is something like a $37.7bn market, part of the overall $90.3bn that, arguably, uses HTMLas one of the core technologies in the stack, at the UI layer, (along with native mobile apps. now).
The dynamics of how open source, standards, and the closed source around it are defined and who “controls” them are one of the key strategic processes in infrastructure software.
The Docker ecosystem is sorting out monetization
Right now, you can see this process in action in the Docker ecosystem. Product management decisions at Docker, Inc. are forcing the community to wrestle with how ecosystem members will make money, including Docker Inc. itself.
By “ecosystem,” I mean “all the people and companies that are involved in coding up Docker and/or selling Docker-based products and services.” Actual end-users play a role, of course, but historically don’t have as much power as we’d like at this stage of an open communities formation.
End-users have to vote with their feet and, if they have one, wallets – whether wearing expensive loafers (enterprise) or cracked sandals (paying with nothing but the pride of ubiquity) – which, by definition, is hard to do until a monetization strategy is figured out, or completely lumped all together.
Looking just at the “vendors,” then, each ecosystem member is trying to define which layers of the “stack”‘will be open, and thus, free, and which layers will be closed, and thus, charged for. Intermixed with this line drawing is determining who has control over features and standards (at which level) and, as a result, the creation of viable business models around Docker.
Naturally, Docker, Inc. wants as big slice of that pie as possible. The creator of any open technology has to spend a lot of nail-biting time essentially deciding how much money and market-share it wants to give up to others, even competitors. “What’s in it for me?” other vendors in the ecosystem are asking…and Docker Inc.’s answer is usually either some strategic shoe-gazing or a pretty straight forwardly the reply “less than you’d like.”
And while I personally consider the orchestration layer the key to the container paradigm, the right approach here is to keep the orchestration separate from the core container runtime standardization. This avoids conflicts between different layers of the container runtime: we can agree on the common container package format, transport, and execution model without limiting choice between e.g. Kubernetes, Mesos, Swarm.
We saw similar dynamics – though by no means open source – in the virtualization market. VMware started with the atomic unit of the hypervisor (remember when we were obsessed with that component in the stack and people used that word a lot?), allowing the ecosystem to build out management on-top of that “lower” unit.
Then, as VMware looked to grow it’s TAM, revenue, and, thus, share price and market-cap, it expanded upward into management. At this point, VMware is a, more or less, the complete suite (or “solution” as we used to call it) of software you need for virtualization. E.g., they use phrases like “Software Defined Datacenter” rather than “virtualization,” indicative of the intended full-scope of their product strategy. (I’m no storage expert, but I think storage and maybe networking?is the last thing VMware hasn’t “won” hands down.)
“What, you don’t like money?”
All of this is important because over the next 10-15 years, we’re talking about a lot of money. The market window for “virtualization” is open and wildcatters are sniffing on the wafting smell the money flitting through. Well, unless AWS and Azure just snatches it all up, or the likes of Google decides to zero the market.
We used to debate the VMware to Docker Inc. comparison and competitive angle a lot. There was some odious reaction to the idea that Docker Inc. was all about slipping in a taking over VMware’s C.R.E.A.M. At one point, that was plausible from a criss-cross applesauce state of the market, but now it’s pretty clear that, at least from an i-banker spreadsheet’s perspective, VMware’s TAM is the number your doinking around with.
Looking at it from a “that giant sucking sound” perspective, most all of the members in the Docker ecosystem will be in a zero-sum position if Docker Inc moves, and wins, the upper management layers. Hence, you see them fighting tooth-and-nail to make sure Docker Inc is, from their perspective, kept in their place.