Large technology companies have spent much of this decade transforming themselves into one-stop equipment, software and services companies.
The pace has accelerated recently with Cisco’s purchase of three companies, the latest being Starent, and Dell’s purchase of Perot Systems at an enormous premium to its stock market valuation.
You can also understand the purchase by Oracle of Sun Microsystems based on this simple premise.
Everyone wants to be IBM.
The key figures are at WikiInvest. IBM had a gross profit of $45.6 billion in 2008 on sales of $103.6 billion. Hewlett-Packard had by that year passed IBM in revenues, scoring $118.3 billion in sales, but bringing in gross profit of “just” $28.4 billion.
HP, by then the leader in computer hardware, announced its acquisition of services powerhouse EDS in May of 2008, and completed the deal in August.
The word which comes closest to describing this mega-trend is system. The salesmen would probably say they’re selling a solution, but whatever term you’re using, it combines hardware, software, communications and services into one grand kabob that completely automates a very big enterprise.
Sounds easy. It is very easy to promise. But it turns out to be very hard to deliver. IBM has been working on the problem for 16 years, which is why our muppet friend is at the top of this post. (Picture from the Muppet Wiki at Wikia.) More on him later.
Take my own hometown of Atlanta for instance. I was at a community meeting last weekend where a city council candidate complained he can’t download the city’s finances to a spreadsheet, because its Oracle system is messed up. (My incumbent council member has made similar complaints.)
Outgoing city CFO Jim Glass is quick to defend his department, but I strongly suspect he is dealing with a classic problem of system integration — hardware, software, and communications bought as pieces rather than a complete solution.
Such problems are not uncommon. I hear this complaint about integration constantly from people I interview, whether they’re running big companies or home-based businesses.
IBM, obviously, charges big bucks to solve these problems, and they can solve the biggest of them. What Oracle, Dell, and HP are doing right now is scaling up to compete with this, adding the missing pieces to their own business puzzles.
The result will be more competition and, most likely, lower margins for suppliers but better value for us.
The man behind IBM’s transformation, which everyone else is now hustling to copy, is Lou Gerstner. (The picture is from CNET.)
IBM was lagging its rivals when Gerstner became its CEO in 1993. He was known as a marketing whiz, having created the “membership has its privileges” campaign at American Express, complete with pricey gold and platinum credit cards.
Between AmEx and IBM, he ran RJR Nabisco. Hence the media’s derisive nickname for him, “the cookie monster.”
Gerstner later wrote a well-received memoir, Who Says Elephants Can’t Dance, about his time at IBM, but I think his strategic brilliance was simple projection. He imagined what customers would want from the world’s largest computer company, and focused the organization on delivering.
What we want — all of us — is simply that our businesses run better. Whether we’re running a giant multinational or a family of four, we don’t want hardware, or software, or peripherals, or communications. We want things to run better so we can concentrate on what we’re doing, not how it’s being done.
Because Gerstner focused IBM on that, and re-engineered the company toward that goal, all IBM’s big tech rivals are now spending billions to follow his lead, 16 years later.
Oh, and the Cookie Monster himself? Wikipedia has an answer to that, too. The Muppet made his first appearance in 1967. In an IBM training video.
You see, all this really is the revenge of the Cookie Monster.
