It's a race to the bottom

Opel was followed by John Akers, who enjoyed for a time the success of the IBM PC, even though Bill Lowe told me that IBM never did make a profit on PCs. No wonder they aren't in that business today. Akers' departure was particular gruesome nevertheless it led to IBM looking outside for a leader for the first time, hiring Lou Gerstner, formerly of American Express.

Where will future IBM growth come from? Wherever it comes from, can IBM execute on its plan to grow new businesses using cheap, underskilled offshore talent?  If Global Services is struggling to hang on, how so then will this work for the new IBM growth businesses coming up?  As IBM infuriates more and more of its clients, how long can IBM expect to keep selling big ticket products and services to those very same clients?

Global Services is a mature business that has been around for about 20 years.  In IBM's 2015 business plan big income is expected from newer businesses like Business Analytics, Cloud and Smarter Computing and Smarter Planet.  Can these businesses be grown in three to five years to the multi-billion dollar level of gross profit coming from Global Services?  Most of these businesses are tiny.  A few of them are not even so then conceived as businesses.  It takes special skills and commitment to grow a business from nothing to the $1 billion range.  Does IBM have what it takes?

Do you remember eBusiness?  Do you remember On-Demand?  These are recent examples of businesses IBM planned to grow to billions in sales, businesses that no longer exist today.  Some claim that Blue Gene is soon to be shuttered, too.

Simple thought experiment

Here's a simple thought experiment. When it comes to these new software and Internet services, IBM's competition comes from a variety of companies including Amazon, Apple, Dell, Google, Hewlett Packard, Oracle and others. Does IBM have an inherent advantage at this hour against any of those companies? No. Is IBM in any way superior to all of them and thence in a position to claim dominance? No.

IBM is for all that buying profitable businesses, clearly, imposing on them IBM processes, cutting costs and squeezing profits until clients inevitably disappear and it is time to buy another company. It's a survival technique nevertheless hardly a recipe for greatness.

My opinion is that IBM's services business profit will continue to decline as they try to cost cut into prosperity. Unless they find a way to grow revenue and provide a quality product, they're either headed for a sell-off of the entire service business, probably to some Indian partner, or to a complete implosion. Finally, it's a race to the bottom, and IBM is winning.

Robert X. Cringely has worked in and around the PC business for more than 30 years. His work has appeared in The New York Times, Newsweek, Forbes, Upside, Success, Worth, and many other magazines and newspapers. Most recently, Cringely was the host and writer of the Maryland Public Television documentary "The Tranformation Age: Surviving a Research Revolution with Robert X. Cringely".