What does IBM do now? What does IBM make now? IBM’s days as the dominant PC maker ended long ago, but IBM is still #32 on the Fortune 500 list.
How does IBM make money without selling anything to consumers anymore?
IBM still makes computers
It surprises some people to hear, but IBM still makes computers. They don’t make computers that run Windows, but they still make high-end computers that run AIX, their version of Unix. They also make minicomputers and mainframes. These lines of business aren’t glamrous but still have high profit margins and usually include lucrative service and maintenance contracts.
Nobody talks about mainframes and mincomputers much anymore, except about how nice it would be to get rid of them. But it’s a rare Fortune 500 company that doesn’t still have at least one minicomputer or mainframe still in service. Why don’t they migrate off those old, expensive beasts? I guarantee they started trying in the 1990s, and there’s always some collection of business-critical code that can’t run on anything else.
I’ve seen plenty of high-level IT executives come and go, claiming they can migrate an IT department off that last IBM mainframe or minicomputer and save the company a fortune. Those plans don’t succeed very often, and IBM thrives on that. Launching a business often feels like building an airplane while you’re flying in it. Migrating off an IBM mainframe is like building a new airplane while you’re flying on another one and then trying to change planes in flight.
In my day job as a computer security professional, I get questions about protecting IBM mainframes and minicomputers fairly often. The modern IBM mainframe has been around for 50 years. Most people concede they’ll be around another 50 years.
In both 2001 and 2013, IBM made a public commitment to spend $1 billion in developing Linux. These contributions varied, including making sure Linux ran well on certain IBM hardware, but IBM also contributed code it adapted from its AIX and OS/2 operating systems to add capabilities to Linux. The first of these projects led to a notorious–and long-running–lawsuit from SCO, a fading proprietary Unix vendor, in 2002.
Then, in October 2018, IBM made a surprise announcement it had purchased Red Hat, the largest and most successful Linux vendor, for $34 billion.
IBM has done rather well both supporting and competing with Linux. If you wonder why Microsoft had a change of heart when it came to Linux in recent years, Big Blue’s success with it probably has something to do with it.
Sales and service
IBM has a significant sales and service arm. They sell their own software, as well as reselling other companies’ software. And in the 1990s, IBM found it was very profitable to install and repair computers, both theirs and other companies’ computers. You can even outsource part or all of your IT department to IBM if you want. One large company I used to sell security software to did exactly that. They decided they weren’t all that good at IT and it made sense to have IBM do it for them.
This is a path many of IBM’s old-line competitors took. Unisys is a great example.
IBM also got into the datacenter/hosting business, competing with companies like Centurylink. Big Blue knows how to run datacenters, so it made sense to extend their expertise in that area to selling it to companies who don’t want to do it themselves.
IBM also competes with Amazon and Microsoft with a cloud hosting architecture. Its offering isn’t as popular as AWS or Azure, but it’s surviving. If you’re buying other things from IBM, it makes sense to consider its cloud offering too.
Machine Learning and Big Data
IBM’s Deep Blue technology famously beat Gary Kasparov at chess in the 1990s. That eventually became a technology it calls Watson, introduced in 2010. Machine learning isn’t quite the same thing as artificial intelligence, but the idea is for a computer, which never forgets, to soak up as much information as possible and relate it to the problem you just gave it.
While machine learning is still a specialized field, it’s loaded with potential. The question is what ways IBM can market it. For now, Watson wins the award for being the product with the two biggest buzzwords attached to it that everyone’s heard of but very few have actually seen.
What Oracle has that IBM doesn’t
Oracle’s database is another example of an unpopular product that nobody can get rid of. The difference between IBM and Oracle is that new things continue to be built on Oracle databases, so it’s a field that’s growing. When a company reaches a certain size, there’s no way to get around Oracle.
At one time, the same thing was true of an IBM mainframe, but that started to change in the 1990s. Companies that made it through the last 20 years without buying one probably won’t end up buying one.
Potentially, the machine learning business could turn into another must-have technology for Big Blue and that would turn them back into a growth stock. But if it just turns into another commodity technology, it probably won’t do much for the Big Blue bottom line.
What does IBM do?: The future
IBM’s transition into these new lines of business came with some pain. Layoffs are relatively common, and it’s left a bad taste in some employees’ mouths. There was a time when you could go to work for a company and expect to spend your whole career there. IBM was one of the last companies where that was still possible. It isn’t anymore, and it’s hurt its reputation at least to some extent.
It’s certainly possible to fall from Fortune 32. It happened to IBM’s one-time rival DEC. But Big Blue has reinvented itself so many times since the late 1970s that I wouldn’t bet against its ability to adjust.
One thing that sets IBM apart from its onetime rivals is its willingness to discard parts of its past before they can bog it down. At one time, it was famous for typewriters. It sold off that line of business in the 1980s. It sold off its PC business when that stopped being profitable. At various times it also made computer chips, computer hard drives, and printers. That’s why I wouldn’t bet against Big Blue in the long run. One of the things IBM does best is not holding on so tightly to its past that it keeps them from moving into its future.