Software // Information Management
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6/22/2011
12:13 PM
Doug Henschen
Doug Henschen
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Will IBM Go 'All In' On Cloud Computing?

IBM has spent more than a decade and tens of billions of dollars buying software. Don't bet on it delivering its smartest technologies on demand any time soon.

IBM has spent $14 billion in just the last five years acquiring analytics and optimization software companies that are vital to its Smarter Planet initiative. It has also talked up the growth and importance of cloud computing. However, where those two trends meet, IBM isn't rushing to move its highly profitable analytics products toward low-cost, on-demand delivery models.

IBM has been on an acquisitions tear ever since 1995, when then-CEO Lou Gerstner purchased Lotus Development. Software and services investments initiated under Gerstner were part of a save-the-company strategy (as detailed in this IBM centennial image gallery), with the idea being to dump low-margin businesses, like DRAM, hard drives, and PCs, and move into higher-margin businesses.

The general strategy remains in place today under CEO Sam Palmisano, even as we've seen different spins on the software strategy. WebSphere got much of the attention in the e-business and SOA eras. Information management rose in importance as companies started grappling with the onslaught of data in the digital era. That led to the deals for Ascential (data integration) and Cognos (BI). The Smarter Planet push of recent years has turned the focus on analytics. Deals have followed with iLog, SPSS, Unica, Coremetrics, Netezza and others.

IBM now has a broad, deep software portfolio that other vendors might envy. But CIOs are increasingly frustrated with having to license, integrate and deploy lots of disparate on-premises software. When most other vendors acquire companies, they integrate the bits and pieces into their applications, such as ERP and CRM systems. That's not as easy for IBM because IT doesn't have a mission-critical transaction platform at the center of its software portfolio.

As Steve Mills, IBM's senior vice president and group executive, software and systems, told me, the company has stayed out of ERP, for example, because "for every dollar invested in ERP, there will be five dollars of investment made around that ERP package to get it fully implemented, integrated, scaled and running effectively."

Those five dollars go into hardware, services, and supporting-software like databases, systems management, development tools, and integration software. That's great for IBM's software and services businesses -- both cornerstones of the Gerstner/Palmisano push into higher-margin businesses.

But the game is changing here at the dawn of the cloud computing era. We've heard loud and clear from CIOs that they want agility, flexibility, and an end to complexity and months-long deployment cycles. App vendors are responding by revamping their platforms to speed deployments and ease upgrade cycles (SAP did that with BusinessSuite 7 and Oracle promises as much with Fusion Apps).

To customers embracing software-as-a-service (SaaS) vendors like Salesforce.com, efforts to make on-premises software easier to deploy might seem like a half measure. SaaS lets you do away with the hardware and middleware and software entirely and just tap into applications as a subscription, online. Even Microsoft is moving in this direction, growing quickly in on-demand CRM, promising on-demand ERP (by next year), and getting set to release Office 365 (next week), an on-demand email and collaboration service expected to see adoption among "millions" of customers, according to Microsoft CEO Steve Ballmer.

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