UPDATED 17:43 EDT / APRIL 17 2012

NEWS

Raising Questions About IBM’s Services Approach

IBM posted mixed earnings results today. Its dividend beat street estimates by 13 cents but revenues were flat with services showing limited gains.

Big Blue’s Global Technology Services segment saw revenues increase 2% to $10 billion. But the Global Business Services segment was down 2 percent to $4.6 billion. IBM also reported that its backlog was down 2% to $139 billion.

Overall, IBM showed its continued commitment to its business model. It raised its estimated earnings per share to $15.

But there is more to this news that points to a different future for IBM and other large enterprise technology companies.

Information Week Editor-at-Large Charles Babccock is one of the deans of the tech press. In a post last week, he put into perspective what it means to run a business like IBM these days, and why Big Blue and other enterprise tech giants are more behind than ahead of the tech curve.

It relates directly to services. The traditional IBM approach is to bundle software and hardware with traditional high touch services. To its credit, IBM is cutting back on its hardware business and is focusing on beefing up its margins for services-related business.  Without question, the company is focused.

But is IBM slipping into a trap? Babcock refers to Accenture’s Tim Jellison, who, without naming companies, said the big guys are being pushed into territory that’s not very comfortable for them. That’s the world of the cloud, which runs on cheap hardware that anyone can use.

It’s the new services approach that is the biggest threat to the enterprise business model. It’s about self-service. IBM has not mastered this to any degree.

IBM and the rest need a more diversified business model. One that is just part high touch with self-service and other models that integrate together. Integration is the Apple approach. You can go to an Apple store, buy an iPhone and subscribe to the iCloud service. That approach is not what we see from IBM and other giants.

Babcock writes:

Instead of selling lifetime software licenses with big upfront payments, software companies may now deliver software as a service, SaaS plus auxillliary services or platform as a service, such as Salesforce’s Force.com, where a development language may build an addition to a Salesforce application and attach it to a database service. Or a company can offer its application on Amazon’s EC2’s infrastructure as a service, letting the customers come to them rather than be pursued by a field sales force.

IBM’s results are on par with what many analysts expected. The results are a bellwether for the overall IT market. The message: things are holding steady.

But this is not the way to look at IBM and the others. It’s time to diversify. Dell seems to be doing, that as is VMware to some extent. Will IBM follow suit?


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