IBM hasn't been cool or sexy for years. The Charlie Chaplin era was cute and yes, Big Blue did legitimate the PC as a business tool. But that's ancient history. This company--never the hippest cat around--turned utterly super square under Lou Gerstner in the 1990s when IBM began to de-emphasize its personal computer business in favor of services, consulting, and infrastructure.
More than a decade and a half later, the remodeling of IBM started by Gerstner--and his successor Sam Palmisano--has resulted in a very different sort of company from the one I began reporting on in the mid-1980s. Lenovo now runs what used to be IBM's PC business. Even more significant, in 2002, IBM bought PricewaterhouseCoopers Consulting for $3.5 billion. At the time of that announcement, The New York Times had it right when it described the deal as a big move by IBM to transform itself into a provider of "information technology to corporate customers as a utility-like service."
Now that the easy times are over, we'll see whether IBM made a prescient bet. Until the clouds lift--and who knows when that will be--repeating revenues obviously are top of mind for Big Blue as well as for its rivals. There's little percentage gain in ringing up transactions for installing a single piece of software with economies around the world heading into a recession (or worse).
So it was that I was particularly interested in IBM's interim report card--its quarterly earnings report--announced earlier this week. IBM announced a 22 percent increase in third-quarter earnings helped to a great extent by the strength of its software and services business. Pre-tax profits at IBM's Global Services segments rose 23 percent (which also was the highest level of services pre-tax margin in six years.) That was fortunate given how IBM's hardware sales dropped 10 percent--and that's also likely a harbinger for other big hardware makers.
Not surprisingly, IBM was in an upbeat mood to trumpet the news as well as its belief that the line between services and software is fast blurring (and maybe it is.)
"What we bring to bear is our knowledge of how the infrastructure works as well as how it fits into a particular business," said Kristof Kloeckner, the vice president responsible for software strategy and technology at IBM. (For that matter, I'm quite sure Hewlett-Packard can make a similar claim, but that's show business.)
With the economy wheezing, every technology provider is going to be under margin pressure. So to the degree IBM can help clients transform their information technology and business agendas, that's money in the bank. And that's going to involve things like service-oriented architecture solutions, new infrastructure development, and business processes.
It doesn't exactly make the pulse race faster. But those bland buzzwords can amount to billions of dollars in recurring revenue streams. Nothing boring about that.