[bilbo0s]

IBM is a sleeper company, which is what microsoft is becoming, which is where the majority of the wealth in this nation is at. I have read the old articles from the 80's and 90's that said that Microsoft would supplant IBM. It is now 2008, and Microsoft generates about US$12B a quarter where IBM is doing right around US$24B a quarter. In other words we are still waiting. IBM made a decision to GIVE microsoft a market. The decision was all the more easy as Mrs. Gates, mom to Bill, was EDIT:(a high level executive at IBM) - on the same boards as the CEO and other board members of IBM - at the time.

My point in all this is that companies, the large ones, the ones that write the US$250M per annum IT checks, buy what IBM tells them to buy. IBM told them to buy Microsoft for a while, because writing that software themselves was a pain. Now IBM will look around for a cloud vendor to be their go to guy for cloud deployments. It is too early to say what this relationship will look like, but it is a certainty that whoever gets the IBM guys out pushing them, will be the enterprise monopoly in the future.

This is a SLIGHT oversimplification of the enterprise purchasing process for large organizations, but it gets at the fundamentals. And in any case, the negation is likely and sufficient to cause GOOG and MSFT trouble. That is, if IBM says NOT to buy Google or Microsoft cloud services, then they are non starters.

If you want to bet on a company that will ride the next enterprise upgrade wave, put your money on IBM. This is the only constant in the global enterprise IT market.

It is way to difficult to figure out whether Google can come up with a product that any large enterprise would want to use. That is, can they really innovate? I think open minded analysts agree that the jury is still out on that one. Equally vexing is the question of whether Microsoft can get their heads out of their butts long enough to create a product that conforms to the next computing paradigm? The only certainty is that whatever happens IBM will be supporting it, and THAT is where the money is. All US$100B a year worth!

And that is only likely to grow!

[edw519]

Mary Maxwell Gates was never an IBM employee. She was on United Way's executive committee at the same time as then IBM CEO John Akers. Their casual conversation led to IBM's introduction to Microsoft.

IBM never meant to give anything to anyone. They were as ruthless then as Microsoft is now. IBM, along with most of the rest of the enterprise world, never imagined the microcomputer as anything but a toy. They didn't even enter the market until 6 years after Apple.

In 1980, IBM was a hardware company. Today they are a service company. The makeovers in between were not painless and were not by choice. Just for not taking the PC seriously.

In 1980, you were as likely to find a job in a Fortune 500 company as anywhere else. Not anymore. New jobs are being created at a much faster rate by smaller, more nimble companies. After all, economies of scale don't mean as much in service economies. These smaller companies don't have the same decision making matrix as the enterprises and will use SaaS. Look at Salesforce.com.

[bilbo0s]

Good point on Mary Gates, though my material point was that only Bill Gates was going to get the contract. Any one else would have faced significant challenges. Also, given the fact that Bill was in his early twenties at the time, I suspect, and I think you do too, that those conversations were anything but casual.

Additionally, IBM has been a services company for over a hundred years. With the greatest service rendered at the Nuremberg trials in my opinion. Hardware has been a way for them to sell services for quite some time. That said, a review of their historical financials, will bear out the fact that they have made far more money on service and support than hardware. That is true if you zoom in per year as well by the way. The computer industry emerged around the 1950s, and IBM was the guy selling the most of them, it's true. But, take a look into their training, service and support contracts if you want to see some serious revenue growth charts.

As to your last point, it is the same point made by Microsoft fanboys in the 80s. It is, in a way, the original 'long tail' argument. It has merit, in that companies that can monopolize the long tail, as Microsoft has done, will make a lot of money. But the fact remains that even with its 'long tail' monopolization, Microsoft still generates less revenue than IBM. FAR less. Why? Because the smaller companies are not willing to pay as much as larger organizations. Which is why they choose Microsoft, it is cheaper, and it is good enough.

Now your assertion is that they will choose Google in the future, because it will be cheaper still, and good enough.

Consider, however, what happens as these customers get more and more frugal. Suppose everyone on the long tail thinks that your product should not cost as much as Microsoft's. Or let's suppose that they believe that everything you get over the internet should be ... say ... free. The amount of money that the monopolizer can generate goes down. But IBM's service and support contracts stay the same price for the big guys! That's the beauty of being IBM. You always win in the end.