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IBM Says its Future is in Services, Not Goods

Posted by Zonk on Tue Apr 12, 2005 02:56 PM
from the shift-the-para-digum dept.
IBM IT Technology
TFGeditor writes "An article at Technology Review quotes IBM exec Paul Horn saying that the company's business model is shifting from goods and products to software and services. From the article: 'Horn's challenge, then, has been to take a $6 billion research organization dedicated to work that advances technology products and get it to do work that benefits service businesses. IBM is thus in the process of answering an important question for all technology companies: can corporations perform useful research in the services arena?'"
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IBM Says its Future is in Services, Not Goods 50 Comments More /

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  • Service Unavailable?? (Score:5, Funny)

    by mr_don't (311416) on Tuesday April 12 2005, @02:58PM (#12215813) Homepage
    When I clicked on the link it said:

    Service Unavailable

    • Don't worry! IBM has a crack team of their consultants working on the web server issue right now.

      If these guys are half as efficiant and technically adept as the ones they sent to my place of employment, I can assure you that the web server will be back online within six months for well under $15 million (costs may increase).

      Seriously, in my experience the only thing your average IBM consultant is good at is eating lunch. And some of them even manage to deliver that late and over-budget.

        • Re:Service Unavailable?? (Score:4, Interesting)

          by Usquebaugh (230216) on Tuesday April 12 2005, @06:22PM (#12218204)
          We still use Notes in a worldwide corporation that has over 25,000 seats.

          We use ZOS, OS/400 & AIX and have done so for the last 10+ years, with no downtime caused by OS failure. In fact I can only remember one outgage caused by these servers, somebody ignored some disk pack erorrs when they should have called the engineer for a replacement. Needless to say said person was lucky to keep their job and was on probabtion for 6 months.

          We use DB/2 and have never ever lost a record or had any downtime caused by DBMS failure.

          We use MQSeries and have never ever lost a transaction or had down time caused by messaging software fail.

          So prehaps you might wish to think a little larger when looking at IBM software. In fact it's hard to think of another company which provides such high quality enterprise software. The downside is cost measured in many many $$$$.

  • Necessity (Score:5, Interesting)

    by MyLongNickName (822545) on Tuesday April 12 2005, @02:59PM (#12215825) Journal
    As products mature, it becomes more and more difficult to diferentiate yourself from your competitors. That translates to lower profit margins. IBM is simply recognizing that. The question becomes, will their services fall into the same trap? Or can they continue to specialize and keep profit margins up.

  • They're only half right (Score:5, Insightful)

    by CSMastermind (847625) <freight_train10@hotmail.com> on Tuesday April 12 2005, @02:59PM (#12215834)
    They do have a valuable point but the reason services will be so big in the future is because right now they haven't truly been explored. Most natural service markets can't exist without a goods market to back them up so in this regard they're worng. There will still be a strong goods market, it just won't be as fast growing as the services market.
    • Why do you claim service markets can't exist without a goods market? More and more, people have all the technology they need to have pretty much every type of content (interactive or not) delivered to their home without the need for physical goods. This means that education, news, entertainment, communication, and most business can be done over the internet.

      But honestly, I'm asking, why does there need to be a substantial goods market to back up these services (given that many people already have the tec
          • Farming in America is a perfectly competitive market, meaning that sale prices between firms naturally balance themselves out. To ensure added stability the US has many controls and regulations in place to mantain price levels. For the most part it's not worth it to ship food in from outside the US that can be grown at home and it's also not worth it for us to ship farm products elsewhere because anybody with the money to buy it doesn't need it. That's why millions of pounds of food is destroyed each yea

  • differences? (Score:3, Interesting)

    by grumpyman (849537) on Tuesday April 12 2005, @03:00PM (#12215835)
    I feel that in IT, in most cases, services are the goods.

  • What about this question? (Score:5, Interesting)

    by slapout (93640) on Tuesday April 12 2005, @03:00PM (#12215836)
    Who's going to do R&D and develop new products? Seems like everyone is getting out of the development business and going into the patent holding/suing one.
    • From IBM's standpoint they are getting R&D for free from the open source community. That is where much of the new products are getting produced.
    • IBM is perfectly positioned to be the champion of new notably middleware standards.

      They can expand their R&D and with no real axe to grind they can secure that new and needed standards gets approvel quicker. Their interest is the quality of the standard that they can then offer their clients as a new service.

      Take a look here [ibm.com]and you will get a good feel for the Future IBM

  • Not too surprising (Score:5, Insightful)

    by HMA2000 (728266) on Tuesday April 12 2005, @03:01PM (#12215847)
    Unless IBM wants to focus on competing with the ever growing chinense and other low cost manufactures they have no choice but to get out of hardware. Hardware is becoming increasingly commoditized and that means it will become a very difficult business to carve out a living in.

    Not to mention IBM has some incredible hardware and software people on staff that would be far better employed helping those with problems in a consulting role.
    • " Unless IBM wants to focus on competing with the ever growing chinense and other low cost manufactures they have no choice but to get out of hardware."
      That is only the Intel/AMD market. How much value added can you do with the Intel/AMD platform? They all have sound. They all have IDE and now SATA. They all have USB. You may be snazzy and add Firewire. Now in the PowerPC market IBM can add value. Look at the Cell, G5, and Power series. IBM simply does not want to be a me too company selling cheap PCs anymo

  • New news? (Score:4, Insightful)

    by op12 (830015) on Tuesday April 12 2005, @03:01PM (#12215848) Homepage
    Is this really new information? Those IBM ads for their consulting services have been on for a long time now, and the more recent commercials even tout these services as the new (side of) IBM.
    • Mod parent up. IBM has always been a service company. The hardware and software they sell is/was nothing but a vehicle for expensive long term service contracts. While they made a profit on that server they sold you, the real bread and butter was that extended warrenty they convinced you to add on. It's the main reason IBM never liked the home PC market, you just couldn't take customers out to play a round of golf while getting them to sign up for a bunch of service plans. Instead customers bought the hardw
  • Hasn't IBM been earning more than half its revenues from services for over a decade? And they're just getting around to announcing it now?

    More news: Microsoft has announced they're going to be a software company. GM is showing some interest in making cars. Walmart is going to start selling stuff.

  • Yeah, right (Score:5, Insightful)

    by Capt'n Hector (650760) on Tuesday April 12 2005, @03:02PM (#12215866)
    With billions invested in chip fabrication, they're not going to be abandoning that business anytime soon. With their name recognition in other hardware sectors, they're not going to abandon those markets anytime soon. Maybe I'm out of the loop, but when someone says "software," is IBM one of the first things you think of? I could imagine EXPANDING into software and services alongside hardware, but then we're back in the 90s selling "solutions".

    • Re:Yeah, right (Score:4, Insightful)

      by SydShamino (547793) on Tuesday April 12 2005, @03:27PM (#12216197)
      >> when someone says "software," is IBM one of the first things you think of?

      When someone says "IBM software", I pause, look at my email client on the other monitor (Lotus Notes), and begin to cry...
    • IBM is actually the largest software developer in the world. Difference is that its mostly internal stuff (damn near everything here is IBM made).

  • Technology "review" is right... (Score:5, Interesting)

    by Skyshadow (508) * on Tuesday April 12 2005, @03:02PM (#12215869) Homepage
    IBM has been pursuing this for a couple of years now. I mean sure, their consultants pushed their own technology, but they were always willing to push it to the side in a heartbeat if they thought it would get them a single penny more. The fact that this is news in 2005 is a little bizarre.

    Of course, if IBM has decided to full-on push their consultants, it might help them to find a few who aren't complete morons. Based on my experience, IBM is well on their way to becoming the new Anderson.

  • Don't RTFA... Spyware... (Score:4, Interesting)

    by profet (263203) on Tuesday April 12 2005, @03:02PM (#12215870)
    Gotta love the spyware contained in the article.

    Avenue, A Inc. Whatever that is.
  • ..only beat IBM to this decision by about 25 years.

  • Google! (Score:4, Interesting)

    by xiphoris (839465) on Tuesday April 12 2005, @03:02PM (#12215875) Homepage
    Google has been conducting its research extensively in the services area. Google labs [google.com] contains a plethora of useful services Google's researching, with new ones coming almost every month. A few ones that interested me: Google sets [google.com] allows users to enter a few items (apple, banana, orange) and Google will find more from that set (pear, kiwi). Google ride finder [google.com] allows you to find taxis and limousines by tracking their positions in realtime. All of these services are available to the public so Google can get feedback on their "research".
  • IBM is fast becoming a company that doesn't actually make anything, and this pretty much confirms that. And that's pretty sad, being that this company pretty much invented computing for the the business sector, and brought personal computing to the general public.

    They're making lots of cash right now, but one day, perhaps sooner than they think, this approach is going to come back and bite them in the ass. And then there might not be an IBM.
  • seems to be all about helping out your customers with every little thing they might need, while perhaps stopping just short of giving their passwords to the wrong people [slashdot.org]. There seem to be plenty of areas that merit more services research, if big companies can't seem to get past stuff like that. Or maybe IBM could just get into offering online courses in Remedial Critical Thinking for help desk staff.
  • IBM makes a boatload of cash off the patents that research generates. Selling/renting out their patents is a service - isn't it?
  • I think that this is a good move by IBM because after Jack Welch left GE there are some doubts about GE as a consulting firm. IBM could jump in and push technology (to help processes and quality) over restructuring and quality focus seminars as the panacea for a company's problems.

    Also, if anyone watched the Masters golf tournament they saw at least 10 commercials for IBMs consulting services. After seeing them buy up all of that expensive advertising time the conclusion is simple: IBM believes that services are the future and they are getting a jump on the competiton with advertising dollars, marketing generalizations and dare I say "slashvertising."

  • They should follow GM ;) (Score:4, Insightful)

    by TheNarrator (200498) on Tuesday April 12 2005, @03:07PM (#12215941)
    GM learned long ago that making physical stuff is a pain in the rear because of unions and pension obligations and became a mortgage lenders (GMAC) that makes cars as a hobby.

    http://www.financialsense.com/editorials/reality/2 004/november.html

    GM's total revenues were $185.5 billion with a corresponding net income of $3.8 billion. However, only $1 billion of this net income came from automotive sales. The $2.8 billion balance came from financing and insurance operations (including mortgage lending). In other words, only 26.3% of General Motors' net income came from automotive sales. Clearly, GM has become a financial services company (that happens to also manufacture automobiles) and its future success is directly linked to its ability to compete in the financial services industry. After all, America now has a finance/debt-based economy.

  • IBM? (Score:3, Funny)

    by MrVictor (872700) on Tuesday April 12 2005, @03:08PM (#12215950)
    It seems that they should consider changing their name to IBSS - International Business Software Services

  • Linux's entry into the mid-market (Score:4, Insightful)

    by G4from128k (686170) on Tuesday April 12 2005, @03:09PM (#12215970)
    As much as U.S. IT folks hate outsourcing (actually it's offshoring that they dislike), it is a way for Linux to penetrate those mid-sized business that don't have the IT to handle OSS themselves. If a mid-sized company outsources customer care, finance & accounting, HR, etc. , then they don't care about the "source" of the underlying software at the provider as long as the service provider does a good job at a decent price. I would suspect that some outsourcing service providers -- IBM certainly -- leverage Linux for its low-cost per seat and economies once you have the scale to support it. The rapidly growing outsourcing providers also offer a greenfield opportunity for Linux -- if you are starting an outsourcing company from scratch then you have the opportunity to pick whichever OS works best without as much an issue of retraining and entrenched workforce.

    Once Linux builds up a competent portfolio of business software (some outsourcing service providers also sell their software), that software will attract non-outsourcing businesses to Linux

  • Capability & Maturity Model research could ben (Score:3, Insightful)

    by MarkEst1973 (769601) on Tuesday April 12 2005, @03:23PM (#12216159)
    My company is currently going through CMM Level 2. I can't tell you how much evangelizing I've done regarding standard processes.

    The cost of building custom applications needs to drop dramatically. Standardizing how they are built is one step towards this goal. Further research into this can also reduce the cost.

    Very competitive bids can be made by a service organization when their cost to produce the service is low, whether that service is network maintenance, custom application design, or what have you.

    At least that works on the small scale of our consulting company with a few million in revenue. I should imagine such a thing would scale to a larger company and make them even more competitive.

  • OpenSource forces even M$ to Services? (Score:3, Interesting)

    by rewinn (647614) on Tuesday April 12 2005, @03:48PM (#12216456) Homepage

    Open-Source may help drive even the biggest software company toward a service model, by putting downward pressure on the market-determined price of software licenses.

    A Seattle Times review of Microsoft's Linux lab boss ends with a comment by IDC's Al Gillen: "...open-source software is going to help drive the acquisition cost of software down toward zero," he [Gillen] said, a shift that will require software companies to move "over to a maintenance and support model."

    "Pluged in to Microsoft's biggest rival" - Seattle Times [nwsource.com] (May require no-cost signup to view.)

  • Communicating = Reading Slashdot (Score:4, Funny)

    by PineHall (206441) on Tuesday April 12 2005, @03:54PM (#12216522)

    Meanwhile, Maglio began to investigate what systems administrators actually do. He found that they spent between 60 and 90 percent of their time communicating with other systems administrators about systems issues.

    Whew! I am glad that they equate reading Slashdot with communicating.

  • A Nation of Salesmen (Score:4, Interesting)

    by pjkundert (597719) * on Tuesday April 12 2005, @04:38PM (#12217060) Homepage
    As long as IBM continues to Create, rather than simply Vend, they will be OK. Unfortunately, (as HP discovered), it is very difficult to not lose one's technical edge, when ones corporation is run by a bunch of stuffed shirts...

    An excerpt from A Nation of Salesmen [findarticles.com], by Earl Shorris:

    I saw that selling, in all its forms, has achieved dominion over the world in our time, not only determining the economic spirit of the nation but deeply affecting its social, political, cultural, and moral life. I saw that America has become the land of the salesman, Homo vendens, who is both dangerous and afflicted.

    Under the dominion of Homo vendens, we are no longer free to know the world. The salesman now informs us. In the mix of mind and matter that is perception, the information comes not from our senses encountering reality but from the salesman. Thus we have lost the world.

  • TRANSLATION: We've fired so many of our development team in order to increase compensation for our highest level execs that we can no longer be innovative so we're going to "market" bullsh*t ideas as "value added services".

    Pax Requiem IBM

  • History repeats itself (Score:5, Insightful)

    by vanyel (28049) * on Tuesday April 12 2005, @05:05PM (#12217370) Journal
    Does anyone remember Control Data Corporation? Used to be, a long time ago, there were two main players in computers: IBM handled business and CDC handled scientific computing, with some gnats flying around, though DEC was more of a dragonfly ;-). The world changed, however, and CDC waned in the 80's. Their spin: "We're going to go into services, not hardware". I think they're a vague memory in the absorption history of another company now (Hmmm. I guess not quite so vague, but I've not heard them mentioned anywhere in ages: CDC Wikipedia entry [wikipedia.org])

    Amusingly, COBOL programming on a CDC Cyber put me through college. When I was about to graduate (81) and doing the interview thing, I'd been put in touch with a head hunter that specialized in finding positions for Cyber programmers. I went to an interview in Dallas, TX, and although it went well, when I came back, I said "no, I want to work with microcomputers, not mainframes." I got the classic "there's no future there" response. I've always wondered what became of her...

    • short term (Score:5, Insightful)

      by goombah99 (560566) on Tuesday April 12 2005, @03:22PM (#12216148)
      IBM always was a goods+services company. You were not buying a bar code reader as part of how you would monitor inventory you were buying a big-blue inventory control system and if the best method for you was a bar ocde reader that's what IBM would implement for you. IBM sold instances of objects not function calls.

      For IBM slightly higher Short term profits are indeed in services. since much hardware these days is commoditized.

      The only reason IBM could get away with just repackaging commondity software and hardware is because they have no competition for innovation. They can just innovate in services and not worry.

      But what is IBM going to do when some other company say toshiba decides to sell goods_services and some toshiba engineer invents a holographic terrabyte on a chip memory and they wont sell it to IBM. IBM is giving up its 100 year formula for why people by IBM. IBM means you have an assured path to the best service and hardware. Long term profits are in goods+services.

      as the parent poster implied. This sounds like what happened to ATT and HP.

    • Re:Everything Real and Tangible will be in Asia (Score:5, Informative)

      by razmaspaz (568034) on Tuesday April 12 2005, @03:55PM (#12216530)
      a) Produce Nothing.

      If we could only get rid of farm subsidies we would be doing this already.

      b) Consume Everything.

      Except the services we sell to all the other countries who have no clue how to efficiently produce their goods., build their power plants, feed their ever growing populations, and cure their sick. We currently have the best university system available (with the exception of possibly England - but theirs is not as widely avaliable) and that translates into the best educated country in the world. Which translates into valuable services. And I would much rather live in a country full of doctors and biologists and engineers than a country of assembly line workers and farmers. The aforementioned jobs all translate to a higher quality of life.

      c) Print lots and lots of worthless dollar bills.

       Is a dollar bill worth anything right now anyway? It is just good faith and the accepted exchangable value.

      • Re:Everything Real and Tangible will be in Asia (Score:5, Insightful)

        by fbg111 (529550) on Tuesday April 12 2005, @05:57PM (#12217954)
        Except the services we sell to all the other countries who have no clue how to efficiently produce their goods., build their power plants, feed their ever growing populations, and cure their sick.

        And once they learn how to do all that stuff, what will they need us for? Or do you think they'll never catch up?

        We currently have the best university system available

        That depends on government funding for research, funding which is being cut across the board left and right these days. DARPA [slashdot.org], NSF [cra.org], etc, are all cutting funding, especially for pure university-based research which is the most crucial in maintaining America's long-term technological leadership, academic quality, and even tax base that is required for additional funding. Without pure research, technological advancement and the steady stream of neato gadgets we take for granted will dry up.

        and that translates into the best educated country in the world.

        Sure, that's why American students are always at the top of every published academic ranking and consistently win international contests. I won't bother to link to the recent /. stories on this.

        Which translates into valuable services.

        An economy can't survive on services alone. There is only one way of creating wealth, and that is by taking raw materials and applying work and ingenuity to turn them into something worth more than the sum of their parts. We used to do take wood and iron and turn it into ships and trains; now we take sand, aluminum, and copper and turn it into microchips. Voila, wealth is created. At best services allow you to ween a little more value out of the products you've created, especially if you see custom software (eg IT consulting) as an enabler of hardware, or something that helps you get more value out of your hardware. At worst, services are simply a wealth transfer, with no additional wealth created at all.

        Don't buy into the malarky that America can prosper as we have without actually making anything. As funding is diverted from pure research to military expeditions and whatnot we undermine our base of future product innovation and development, while China learns our manufacturing techniques through outsourcing and educates hundreds of thousands of engineers and scientists in our universities, who are capable of bringing their education, research, and innovativeness home and away from the US.

        As American CEO's sometimes cannibalize their companies' future for immediate stock price gains and golden parachutes, so our recent presidents, CEO's, and financiers seem to be doing to our entire country.
        • Cool web site. I'll see your statistic and raise you a more relevant one: rate of enrollment in tertiary education [nationmaster.com].

          I think there's a general consensus that American higher education (undergraduate, postgraduate, and professional) is still the class of the world. Both its quality and its accessibility to outsiders play a role. When American, European, Asian, and African students all start flooding into the burgeoning universities of India, China, France, or wherever else, that consensus will change. But the
        • Whoa... wait a second. Isn't efficient production of goods *the whole point* of outsourcing? I know you don't mean to say Taiwan doesn't know how to produce electronics efficiently or Japan doesn't know how to produce cars efficiently do you?

          What I mean to say is that Taiwan is efficient at producing electronics because American companies created the processes to efficiently create those electronics.

          Well, you have me there. We are the bread basket of the world here in America... though that might have

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