IBM’s assets combined with Red Hat’s business monetization models are a good bet to provide a scaled, secure and trusted platform, if IBM can adjust internally and convince its clients to do the same.

The market splash

When a blue-chip bellwether company buys a firm that broke the lock on proprietary operating system dominance something big is afoot. IBM’s market luster has faded somewhat, and the financial sharks are circling with calls for CEO Virginia Rometty’s head and for IBM to be broken up and sold off to warm the cockles of institutional investors’ hearts, who cannot see the market implications beyond 90 days. IBM has been here before, in the late 1980s when Digital Equipment Corporation had a higher market valuation than IBM based on a single architecture and operating system as opposed to IBM’s six or so disparate computing architectures and operating systems. IBM’s first effort to course correct with the 9370 minicomputer was essentially dead on arrival, but its second shot, the AS/400, lives on in server closets to this day as the iSeries.

But this new challenge is different, and IBM knows it. Its executives talk about how “the axis has flipped.” At TBR, we talk of the Business of One as others label this moment as Industrial 4.0. The core revolves around cheap compute. Moore’s law has been the fundamental economic axiom driving the rapid rise and fall of technology vendors for at least 60 years, though some say its effects are waning. Despite the undeniable shift, innovations around cheaper and cheaper compute, storage and networking sources will continue in ways fascinating to fathom, especially as quantum computing nears commercial viability. At once scale means nothing and everything in this Business of One era.

Scale: Vital and trivial at the same time

Scale means nothing amid the development of new ideas.

Scale means everything when it comes time to ensure business commerce can leverage the new ideas in ways that protect brand, customer privacy and regulatory compliance.

IBM understands this as well as, if not better than, any of its competitors. The challenge for IBM is the same one faced by Satya Nadella when he took over Microsoft: how to change a deeply ingrained and highly successful corporate culture to align to these new, seemingly contradictory market realities. A lot of economists get lost in the buzz of hypergrowth for scaled public cloud revenue. Public cloud, at its core, is nothing but a commodity utility offering. It has never been the IBM play, and it ought not to become its play now. The company’s domain is enterprise IT, not easy storage of family photos or digital music. Amazon, Azure and Google (“Amazurgle”), and emerging regional rivals, can meet these demands, especially when such companies derive the bulk of their revenue elsewhere through advertising or e-commerce.

What IBM has to learn is how to compensate the management layers on companywide execution rather than on siloed execution. You cannot hold firm on razor sales when to lose that sale means risking a lifetime of highly profitable razor blade sales.

The technology assets IBM stands to gain in the acquisition are well documented, particularly in a recent commentary by TBR Senior Analyst Cassandra Mooshian. But TBR has covered IBM and Red Hat for years, and after one particular Red Hat analyst day, TBR summed up Red Hat CEO Jim Whitehurst’s business strategy as “deja vu all over again.” Essentially Red Hat aimed, and is still aiming, to do in the PaaS layer what it did in the enterprise operating system layer. Red Hat’s success with this strategy would prove a boon to IBM, and IBM’s long working history with open-source communities should allay many (but obviously not all) of the concerns within those communities around the business following the proposed acquisition.

The cycle of complexity is back as infrastructure vendor portfolio transformations make digitization achievable

Moore’s law economics has reached a point where compute no longer constrains IT automation. Due to the miniaturization of electronics, distributed computing is taking place at the microprocessor board level, as evidenced by the rise of graphics processing units (GPUs) and the resulting hyperconverged infrastructures. As such, refresh cycles no longer consist of replacing old, standardized Intel servers with new variants. Now IT departments look at the cost economics of the traditional standardized servers against the increasing number of compute form factor variants coming to market as purpose-built edge compute instances.

As compute form factors proliferate, there has been a shift in the type of skills IT departments require. Manual taskwork becomes automated. Technical skills have to incorporate more software functionality to operate the various management control planes that can monitor, manage and dynamically provision an enterprise IT instance. Physical IT becomes less relevant based on abstraction, which allows for enterprise IT to reduce the number of primary suppliers. The margin protection for infrastructure vendors will come from the power and simplicity of the abstraction layer, be it PaaS or management, orchestration and provisioning.

The plot thickens when emerging technologies are placed on top of this evolving landscape. Cutting-edge capabilities and the growing need to secure environments are further adding to the complexity of IT infrastructure, as is necessary to achieve desired outcomes. Meanwhile, consumers want to reap the benefits of these emerging capabilities without dabbling in the complexities. Infrastructure vendors will undergo many transformations — in how they partner, in how they go to market, and in how they innovate — to maintain relevance in a rapidly evolving 2019.

2019 Predictions

• In an increasingly open-source world, the power of partnerships grows stronger within hardware-centric vendor strategies
• Innovation will be reimagined by infrastructure vendors, as R&D is shifted to address the overarching demand by customers to leverage their key IT vendor as a one-stop shop
• Emerging infrastructure technologies reshape customer demands, placing increasing emphasis on new ways of computing and managing data

Register for TBR’s webinar The pendulum swings: Customer demands reshape how infrastructure vendors do business, Feb. 6, 2019.

The first few years of the 5G era will be underwhelming, but the future looks brighter for the telecom industry, especially as Industry 4.0 gains steam

The telecom industry entered a brave new world with the inception of 5G in 2018. Stakeholders industrywide are hoping this newest network generation will provide much needed revenue growth after the prior network generation, 4G, fell short of this goal over the past decade. Stakeholders hope 5G enables Industry 4.0, which will spur revenue generation opportunities for service providers that provide the connectivity layer and value-added services to businesses.

Though TBR agrees Industry 4.0 will ultimately take hold, our research suggests the cycle will start later and take longer to play out than many expect. TBR expects 5G to drive a renaissance in new commercially viable use cases for the network between 2022 and 2025, which will be beneficial in the long run but makes the next few years a continuation of the same challenges the industry has been dealing with, namely a lack of growth prospects and additional margin pressure.

In the interim, communication service providers (CSPs) will focus on cost optimization and will allocate their initial 5G investments to enhancing their traditional connectivity businesses to more cost-effectively support the ever-increasing amount of data traffic coming onto their networks. This cost optimization mindset, coupled with digital transformation ambitions, will lead to an acceleration in spend on NFV/SDN-related initiatives as well as 5G access build-outs, particularly in lead countries.

2019 Predictions

• CSPs justify initial 5G investments for their cost efficiency attributes
• CSPs accelerate network transformation endeavors
• Wireless begins to disrupt the traditional fixed access business model

Register for TBR’s webinar 5G will be an evolution, not a revolution, Feb. 13, 2019.

IoT is getting a lot easier

While it is too early to say that the Internet of Things (IoT) market is fully mature, it is maturing. The first three years of the IoT era were filled with extravagant claims, inadequate products and services, and a chaotic partner ecosystem. Starting in 2018 and accelerating throughout 2019 and 2020, more customers will come to the market with an understanding of what they are looking for, offerings will be easier to implement and integrate, and the partnership ecosystem will be more navigable for both vendors and customers.

Increasingly, IoT will be delivered in complete solutions, typically including components from several vendors. As IoT matures, more specific use cases with sufficiently broad applicability will be implemented as solutions, addressing common problems both within and across verticals. Solutions will vary in customizability and integrability.

The economics of data collection, transmission, processing and storage will play an increasing role in the design of IoT solutions. Data-related costs dictate the feasibility of many IoT projects and have driven the adoption of edge solutions.

2019 predictions

• The IoT ecosystem will sort itself out; vendors will find their niches
• Packaged and bundled IoT solutions will proliferate
• Not all data is valuable: Data economics will drive design

 

Register for TBR’s webinar IoT is getting easier, Jan. 23, 2019.

During his tenure at Oracle, Thomas Kurian proved himself as a balance of technical savvy and business strategist at a company that serves the largest enterprises in the world. He reportedly left Oracle because he believed more fully in a strategy to coexist with the cemented leaders in the public cloud IaaS market. Both of these points fit Google Cloud’s aspirations well.

Creating its Google Cloud division and appointing Diane Greene as its CEO in November 2015 was the first step Google, Inc. made to tell a cohesive story around its managed cloud services and more effectively vie for share of the enterprise cloud market in competition with Amazon Web Services and Microsoft Azure, among others. Greene’s enterprise experience from co-founding VMware qualified her to start this transition, but potential Google customers have indicated to TBR that Greene’s empathy had not effectively trickled down the organization to complete the business messaging enterprises are looking for. TBR believes Kurian is a perfect fit to complete what was started by Greene, and he will be able to wrap Google’s technical abilities in a more clear and compelling enterprise story.