IBM: It’s Gut Check Time

Whether large, medium, small, or start-up, there comes a time in the life of every company that shapes both the future of the company itself and the industry at large.  Today, the battle for the datacenter has sent shockwaves throughout the silos of networking, server, storage, and security.  As Cisco and HP have gone “all-in”, it is time for IBM to place its bet.

The stakes are incredibly high and there is little margin for error.  IBM can either purchase the necessary pieces to “unify” the datacenter and compete head-to-head with HP and Cisco, or they can continue to partner with the likes of Cisco, Juniper, etc. to provide a best-of-breed solution fueled by their own services business.  However, consolidation may prove to make the latter unsustainable and doing nothing may lead IBM on a precarious path.

Cisco understands the importance of IBM, HP, and others to their bottom line as both of these giants resell Cisco equipment to their customers.  However, Cisco continues to take steps to diversify their business model and they are one acquisition away from changing the equation.  What acquisition?  How about engineering a purchase of CSC, ACS, or the coup de grace Accenture?  Don’t laugh; ever envision a world without Lehman Brothers or Meryl Lynch?

HP is clearly positioning itself as the answer to Cisco’s dominance.  HP has or is prepared to acquire the missing pieces to reshape IT.  With their aggressive purchases of Mercury Interactive, Opsware, and EDS, HP has shown a keen sense of urgency, vision, and market awareness.  It is no wonder that HP is pondering additional networking acquisitions to strengthen their position within Ethernet switching and storage networking.

IBM too has taken steps to answer the unified computing challenge, but their approach has been through partnerships, research and development efforts, and OEM agreements.  With a fragmented industry, this approach made perfect sense.  However, as the industry continues to consolidate, IBM may find their most important OEMs or partners in the hands of their rivals.  One such example of this danger, is with the rumored “for sale” sign that now hangs above Brocade.  IBM recently signed an OEM agreement with Brocade for their network switches.  Would this agreement continue if Brocade is purchased by HP?

It is gut check time for IBM.  IBM has strong plays in services, applications, storage, servers, virtualization, and security with a glaring hole within networking.  Do they continue to fill this hole with Juniper, Brocade, Cisco, and more while accepting the risks associated with this strategy or do they fill it by making a strategic acquisition or two?

Perhaps an alternative strategy would be an even tighter relationship with Cisco.  However, as Cisco aggressively moves into IBM’s home turf (servers, virtualization, storage), this may be untenable.  After all, Cisco’s Chambers realizes the money is in services and eventually he will want a bigger piece of the services pie.

Does IBM want to lead, follow, or get out of the way?  Do they let their vision of autonomic computing slip through their fingertips?  Do they allow Oracle to become a one-stop-shop?  Do they watch while Cisco enters into the services business?  Do they allow HP to continue to grow and extend their reach and capabilities?  Or do they fight?  Do they purchase Brocade and Juniper?  Do they finally unify, via technology not marketing, networking, storage, servers, security?

In-the-end, these decisions will be made deep within IBM’s boardroom and are conditional on Samuel J. Palmisano’s, CEO and Chairman of the Board of IBM, vision for the company.  He’s already reshaped IBM’s software business with the purchase of Cognos and SPSS (pending), why not take a shot at redefining networking, datacenter, and cloud computing?