By Charles King, Pund-IT, Inc. September 28, 2016
It’s difficult to think of an issue that has had a greater effect on the IT industry than commoditization. The ability to develop and deliver often awesomely complex microprocessors, flash memory chips and other components requires unprecedented manufacturing innovations. Commoditizing those technologies has enabled vendors to place increasingly powerful computing solutions into the hands of businesses and consumers.
Ironically, the success of IT commoditization has also resulted in notable competitive challenges. Fully embracing highly commoditized and industry standard components requires significant investments if vendors hope to differentiate their products from competitors’ offerings. Some are far better suited to these efforts than others, but a few vendors, including IBM, have chosen a substantially different path.
IBM determined that fulfilling its own and its customers’ requirements demands more than what solutions largely or fully leveraging commoditized components can provide. Instead, the company has pursued and delivered numerous singularly innovative solutions. IBM’s journey and its results were on clear display at its Edge 2016 customer and partner conference last week in Las Vegas.
Systems and the changing face of IBM
Opening keynote presentations generally set the tone for larger events, and Edge 2016 was no exception, with the kickoff delivered by Tom Rosamilia, SVP of IBM’s Systems group. But before examining that presentation, let’s consider the current state of IBM Systems.
In point of fact, it’s difficult to think of another IBM business unit that so clearly reflects the remarkable metamorphosis the company has pursued for well over a decade. Consider that in Q1 2006, IBM Systems drove $4.4B in sales, or more than a fifth of the company’s $20.7B in total quarterly revenues. In the earnings call a few months ago, IBM reported that of its revenues of $18.7B for Q1 2016, the Systems group contributed $1.7B or less than a tenth of the total.
IBM Systems has also borne the brunt of the company’s steady exit from low margin commodity technologies and products, including Intel-based PCs and servers (sold to Lenovo in 2006 and 2014), hard disk drives (sold to Hitachi in 2002) and enterprise printers (sold to Ricoh in 2007). The effect on IBM Systems’ ability to generate revenues is hardly surprising.
However, some would interpret this (and have) as evidence of IBM’s steady spiral downward into hardware irrelevance. That sounds almost sensible except for a couple of niggling facts:
- IDC’s server market research consistently finds IBM to be the leading vendor, by far, in high-end and non-x86-based system sales, both of which deliver much higher profit margins than commodity servers,
- Like other storage vendors, IBM’s sales of traditional disk and tape arrays have been taking a beating, but it has emerged as a strong player in emerging all-Flash and hybrid Flash storage solutions,
- IBM’s efforts to evolve its z Systems mainframe, Power System and storage platforms for new business applications and use cases have been generally successful.
While the company would certainly like to drive higher hardware revenues, IBM Systems is pursuing a solid mix of satisfying customers’ current needs and pursuing new opportunities.
What does this have to do with IBM Edge 2016? During his keynote, SVP Rosamilia focused on issues of critical interest to the 5,500+ Edge attendees, including how best to enable clients to adopt and adapt to valuable emerging applications and platforms, including mobile, social and hybrid cloud. The main point, Rosamilia noted, isn’t simply selling customers more products and services but helping them change their business models to complement evolving technologies.
That is crucial given the increasingly complex, powerful solutions and services that businesses have at their disposal, such as big data, advanced analytics, cognitive and hybrid cloud. In those use cases, compute-dependent businesses are looking for significant improvements in areas like transaction and analytics performance, reliability and resiliency, and data center/facilities energy efficiency—all areas where IBM’s z Systems and Power Systems shine.
In the current and coming state of enterprise IT, Rosamilia stated, “Compute speed is not just about the processor. It’s about systemic performance.” The clear message at IBM Edge was that the company has the experience, the commitment and the goods to deliver market-leading performance across a range of enterprise applications and workloads. IBM’s continuing leadership in enterprise product segments suggests that its customers trust the company to do just that.
Blockchain and business authenticity
Like the other IT analysts who have contributed to this issue of the Review, I was impressed and intrigued by Edge 2016 presentations on IBM’s efforts around Blockchain. That’s partly due to the technology’s somewhat checkered background related to its evolution in often eccentric, occasionally questionable Bitcoin applications. However, IBM had a pair of terrific Blockchain experts on hand to help Edge 2016 attendees understand the nuances of the technology. I met both at an analyst lunch hosted by IBM.
One was Donna Dillenberger, an IBM Fellow and leader in high-end, integrated transactional analytic systems and services, and datacenter optimization. The other was Leanne Kemp, founder and CEO of Everledger, a U.K.-based company that utilizes Blockchain and the IBM LinuxONE z Systems platform to support fraud detection services for luxury goods companies, insurers and law enforcement agencies.
Dillenberger noted the critical place that trust and authenticity have always had in successful businesses, but it is often difficult to assess those issues in a world of extended global relationships. Add to that the fact that many traditional processes are complex and minimally transparent.
As an example, Dillenberger noted that financing an international trade deal can require as many as ten separate parties executing 30+ transactions, virtually all of them paper-based documents, including contracts, invoices and bills of lading. The cost of sharing those materials via secure couriers adds tens of thousands of dollars to each deal. Plus, without stringent expensive oversight, paper documents can be easily altered or counterfeited by fraudsters and goods-skimming thieves, resulting in billions of dollars in losses and insurance payments annually.
How can Blockchain mitigate those problems? IBM’s LinuxONE enables Secure Service Containers that provide end to end encryption for all of Blockchain network’s contents – software, chain code and data assets. None of those assets can be accessed by root users or administrators, and the IBM architecture rejects malware self-installation. The result is a federated, highly secure business-to-business network containing unalterable ledgers of business documents available to all involved parties. In fact, IBM claims that no vendor offers Blockchain solutions that are as swift or secure as its own.
It’s easy to see the value of IBM LinuxONE Blockchain across a wide range of processes and transactions, especially those in finance, banking and other highly regulated industries. However, the technology is widely applicable in numerous other industries and businesses where assuring authenticity is crucial. Everledger’s Leanne Kemp detailed how her company is using IBM’s solutions to track and protect diamonds and other luxury goods.
Typically, diamond traders utilize fax machines and embossing stamps to certificate gemstones when they are rough, cut and polished. Certificate falsification or outright theft can occur during any stage of diamond processing. Kemp believes that insurers pay out around $100M annually for diamond theft (not to mention the $200M they spend yearly fighting fraud) but fail to detect nearly two thirds (65%) of fraudulent claims.
She also believes the diamond industry as a whole loses as much as $45B to theft every year. It should come as no surprise that leading players, including the Diamond Borse, de Beers and the Gemological Institute of America (GIA) are working to modernize the industry with Blockchain and the assistance of Everledger and IBM.
IT commoditization offers inestimable value and benefits for consumers and businesses, but it would be a mistake to assume that game-changing technologies reside solely in commodity-based products. IBM, in particular, has proved time and again that its homegrown z Systems mainframes, Power System servers and storage solutions deliver unique value to tens of thousands of enterprise customers.
The popularity and longevity of those platforms among private and public sector organizations is testimony to the underlying value of the company’s focus on systemic performance. However, as was clearly on display at Edge 2016, IBM Systems is also succeeding in finding homes for the company’s hardware solutions in new markets and use cases, such as Blockchain, and with partners and customers like Everledger.
Overall, the Edge 2016 conference displayed IBM Systems at its best – an innovative organization that offers customers dependable solutions they can use today, as well as a clear-eyed view of the future that will benefit them in years to come.
© 2016 Pund-IT, Inc. All rights reserved.