Apple, the progressive, innovative darling of the computer business, may be going down the drain. While slow-moving, conservative IBM, not so long ago the favorite bad example of industry observers, is now Wall Street’s favorite turnaround story. How can this be? Maybe there’s a connection. But maybe not. Apple popularized the notion of the PC. But IBM popularized the machine itself. The two most significant differences between the companies were: The Macintosh was a totally closed box, while the PC encouraged add-in hardware and software, and Apple never made factory service available, even though people buying their first desktop computers were understandably nervous. By contrast, IBM and all its intelligent competitors offered a factory service option. Apple showed a mass market how to put the graphical user interface concepts painstakingly developed by Xerox into an almost widely affordable package, only to be overwhelmed by Windows. IBM, having examined the Mac and a spreadsheet showing that its PC design would continue to gain market share even if it did not have the Macintosh operating system, had complete confidence in its ability to stay in control of the market. It was overwhelmed by Microsoft, although IBM still has an obsession with OS/2 (pronounced half OS). Here, Apple and IBM have a lot in common. Both did a poor job of courting applications developers, both failed to develop applications of their own to showcase their system software. The new wave of computing, which has the potential once again to alter the power structure of the industry, is based on Internet technology born not of the Apple nor the IBM cradle of development. Apple really bit the dust here, plunging into eWorld of woe. Earlier, IBM, in cahoots with Sears, launched Prodigy, which sunk to the bottom and has been harder to raise from the depths than the Titanic. Apple actually had a second chance.
Fall from grace
It built a superb, portable Internet terminal, Newton, but erroneously marketed it as a toy for the overpaid. IBM is still trying with software called Notes, which bears the same name as the section of the annual report that contains the gory details of the Lotus acquisition. It is not yet clear whether Apple and IBM have a lot in common when it comes to Web surfing, but Apple knows to quit before it kills itself; IBM may not be this honest with itself. Neither understands the real power of Java, which is that it makes full motion advertising on the Web a commercial possibility. So, will Apple rebound? Will IBM again fall from grace? The jury is still out. Apple still has enough charisma to make it. IBM has plenty of dough. But their customers may be less impressed than Wall Street. And that, at least, makes sense.
Future strategy for IBM?
Having established that it is once again on a solid financial footing, IBM must now begin the second phase of its recovery: choosing a strategy for the future. The company has said that the theme of its efforts will be network-centric computing. But the current facts suggest that IBM continues to derive most of its revenue and nearly all of its profits not from the leading edge network technologies, but instead from the persistence of demand for traditional computer systems. This situation will be reassuring to users who know that they will need MVS or OS/400 now and in the foreseeable future. But it will not ease the concerns of customers whose changing business requirements are forcing them to reinvent their information processing systems and procedures. For now, most large enterprises are comfortable installing Web servers and testing Internet-intranet techniques in ways that leave their central systems largely untouched. But this approach will not persist. Some applications will be moved off traditional systems onto new computers that are more capable and efficient. Other applications will remain as they are for as long as it is possible for IBM to provide economical support. But IBM’s ability to cope with this duality is not unlimited, and it will be
shaped by the financial, technical and managerial constraints of its complex situation. It will particularly be shaped by the personality and capabilities of Lou Gerstner. Although Gerstner has brought IBM back from the brink of disaster, he has not yet shown that he is capable of moving the company forward into the network centric world he (and just about everyone else) thinks is just around the corner. If anything, Gerstner has done the opposite.
Fallen short of the mark or failed
Many vital IBM product development efforts have fallen short of the mark or failed. Although Gerstner is not directly responsible for these embarrassments, they are his responsibility. Since Gerstner’s installation as chairman and chief executive, IBM has: Lost leadership in very large engine mainframes to Hitachi, Lost its dominance of the captive mainframe disk market to EMC, Bumbled its Prodigy interactive services venture and failed to become a serious Internet provider, Failed to exploit its PowerPC technology in mass- market personal computers, Missed the dramatic opening of the Internet software market and bet heavily on Lotus Notes, and Pushed IBM into the services business in a way that has produced plenty of revenue but not much in the way of profit. Because IBM’s currently improved position has come largely as a result of payroll cuts, plant closings and the resurgence of the mainframe business, it is difficult to be optimistic about the company’s future. IBM is certainly a survivor. But it is has not re-established itself as a vendor that can help customers exploit the networking phenomenon it says will be its future. IBM has not shown the courage to make open systems and particularly open networking the strategic basis of its customers’ future applications. It may be dragged into that world by the market, but that is a far cry from the posture IBM must adopt if it hopes to gain enough control over its destiny – and the destiny of information processing – to remain at the top. To his credit, Gerstner has: Rebuilt bridges to enterprise MVS users, Established a strong presence in the Unix market with RS/6000 and SP processors, Stabilized IBM’s cash flow and balance sheet, Persisted in the legal battle to release IBM from the 1956 Consent Decree, and Made the IBM bureaucracy aware that he will install outside talent at the highest levels of IBM. Perhaps Gerstner would be the first to admit that the rebirth of IBM is far from complete. He may be an excellent midwife, but he is an unproven mother. And he does not seem like the sort of person who could easily concede that he might be capable of directing only the first phase of a complex, lengthy job. Copyright (C) 1996 Technology News of America Co Inc. All rights reserved.
