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IBM’s Consumer Business: Tell The Story, Boost The Share Price, Deepen Customer Relationships

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Saying what you don’t do is a useful mechanism to frame what a company actually does. At RedMonk we advise companies that it can pay dividends to say: “we don’t do that.” Explaining that something is outside your remit or capability allows people both inside and outside the company to better understand what you’re good at. Too many firms try to be all things to all people.

IBM Global Business Services’ consulting-led “we can do anything” customer engagement approach notwithstanding, Big Blue is pretty good at playing the “we don’t do that” card. Two things IBM “doesn’t do”: applications and consumer business.

The benefits of saying “we don’t do apps” are far less compelling than they used to be, when IBM attracted ISVs to its middleware platforms with a promise not to compete with them. Problem for IBM is that Oracle just buys all the partners (JDE, PSFT, Siebel all made major commitments to IBM middleware before being acquired by ORCL)… but that’s a subject for another blog.

In this blog though I will argue that

  1. IBM already has a really strong consumer business
  2. It should recognise the fact and act accordingly
  3. A well understood consumer strategy would deepen relationships with customers and rive up IBM’s share price

IBM Consumer Technology Group

IBM’s Power microprocessor business diversification is going great guns – the chipsets are found everywhere from cars to routers to game platforms to set-top boxes – but last week in a meeting with Simon Porter, vice president, Global Engineering Solutions, Northeast Europe, it struck me more powerfully than ever: IBM has a consumer business and it is absolutely rocking. So why not- give it a name?

  • Who supplies Nintendo’s microprocessors? IBM
  • Who supplies XBox’s microprocessors? IBM
  • Who supplies Sony Playstation’s chips? IBM
  • Who supplies 90% of the world’s GPS chips? IBM

That last one came from Simon Porter. Who knew?

Global Engineering Solutions (great business, terrible name) works with other companies to help get their new products to market, usually with a strong IBM technology component. GES is the part of IBM seemingly most aggressively committed to co-creation and co-innovation. It is walking Irving‘s talk (PDF warning). IBM offers design services to consumer-oriented companies through GES. In one recent transaction it took over the design services team at a Nokia-Siemens joint venture. IBM of course has a great industrial design heritage; it makes a lot of sense to expand and sell this capability to customers.

Business is going well so why so little in the way of co-marketing? IBM surely isn’t going to get an “Intel Inside” campaign going but there are other ways to sell a story. First off is to say what you do. Saying what you don’t do is cool but saying what you do also has some advantages.

A Game of Global Positioning: GOOG > IBM

Location-based services is an incredibly hot space at the moment-with multibillion dollar acquisitions playing out in the markets. But you wouldn’t even know IBM had a play. But assuming the GPS market share numbers Simon spoke to are right, or even half right, IBM is in a great position.

So what about the consumer angle? Stephen has argued that IBM needs a consumer business to ensure, for example, the kind of volume platform economics the IT industry thrives on. Wintel wouldn’t function without home PC sales. I have written any few pieces critiquing this approach, and Cote’s discussed its impact on the SMB market.

I have even suggested an IBM Amazon acquisition, because the online retailer has not only revolutionised the way we buy things, but it is now revolutionising the way we consume IT services through its S3 and EC2 cloud storage and computing platforms.

We know that spanning consumer and enterprise can drive incredible valuations. Google now has a bigger stock market evaluation than IBM (and you wouldn’t bet against the share price could hit $900 a share by Christmas) doesn’t unduly worry IBM’s CEO,then it should do. Google is hard to dismiss because its share price is based not on the fact it attracts eyeballs, but that it gushes cash. Of course Google is exceptional isn’t it? Microsoft’s share price isn’t powering ahead based on X-Box and Windows Live services. But Apple, like Google, has been valued more highly than IBM of late. 

Nintendo is the second biggest firm on the Tokyo Stock Exchange, a valuation borne of smart pricing, “good enough” hardware, a major user interface breakthrough (that’s Wii controllers to you and me) and hackability (hackers make great evangelists, and bring some cool to the party. Why not fly through SAP screens using a games controller?)

IBM would potentially attract new investors if it told the consumer story right, overcoming the kind of long term groupthink among financial analysts that still classes IBM as a mainframe manufacturer, and values it accordingly.

Selling Design and Build

I am not suggesting, in this blog at least, that IBM sells direct to consumers. IBM doesn’t need to sell to consumers to reach out to them with great experiences, and be known for doing so. What I am arguing that IBM is clearly already in the design services, component supply and outsourced manufacturing advisory markets. It just needs to give the business a name, a leader, and its own identity. Marketing it would be a great first step.

IBM could run events where people got to play with cool gadgets and gizmos, in the process making its partners happy.

It could run investor events for consumer-products analysts.

IBM already has its feet in the consumer water, most notably through its gaming business. So why not double down with a stronger corporate focus on Game Tomorrow:

There’s certainly been a lot of money flowing towards advertising in games lately.  As recently reported in BusinessWeek, a new PriceWaterhouseCoopers report claims the industry itself will grow to almost $32 Billion by 2011.  So it’s not surprising that related claims of the the in-game advertising portion of those revenues growing to almost $2 Billion in the same timeframe don’t seem unreasonable.  Otherwise Microsoft wouldn’t have purchased Massive, would it?

But with all this spending comes the deeper question: does it actually make an impact?  Marketers are all-too-aware of that hoary old adage: “I know half my advertising budget is wasted…I just don’t know which half”.  Does in-game advertising, while certainly reaching a measurable audience (just look at Nielsen’s new GamePlay Metrics ratings system), actually have a measurable (and positive) impact on the advertisers’ brands?

Well, two new studies are pointing us to a qualified “yes”

Deeper Blue

I spoke to deeper customer relationships in the intro. What more powerful incentive is there than joint success? But to really help with customer engagement models and design for B2C firms IBM also needs to be in the game. Not to compete with consumer-focused firms, but to underpin their success. IBM’s marketing around Second Life and Wimbledon is one model for success in profile building.

IBM needs to give the new business a name. I don’t even like the word consumer mostly because it doesn’t do justice to human creativity,which digital living can encourage. But people “get” consumer, so the term obviously has value for framing purposes.

I need to think this out some more but I would love your thoughts.  


  1. Two points:
    1. Selling chips to business’s that end up in consumer devices is not “consumer business”. You need to understand the consumer (styling , cool , etc) to be in the business.

    Your point of IBM aquiring Amazon would be valid is S3 and EC2 were atleast > 50% of amazon business. Buying a consumer company for the side benefits does not make sense. And besides IBM made a choice – IT got out of the consumer business completely by selling PC to lenova.

    2. Quote – “We know that spanning consumer and enterprise can drive incredible valuations”.
    Dont know if true ??? Look at HP , the only technology company in the world that spans consumers to Enterprise end to end. and look at its multiple. Revenue > 100 B but market cap

  2. hey some dude. re point 1 i think that’s kind of my point in a nutshell. unless you’re saying you can’t imagine a “consumer design services” company that didn’t actually sell to consumers…?

    on amazon- i think growth is an important part of any M&A story. its no good buying after the fact. but there are yield management questions here to consider.

    2. on HP another great point. I don’t think i was saying any consumer story drives growth and P/E ratios-but good ones do.

  3. hey – some dude. i found HP’s latest set of results pretty interesting. obviously its just one data point, but according to the FT over the past quarter IBM shares have drifted down 10% or so. HP only 5%. Now HP has reported outstanding sales of laptops to consumers in Asia.


    “A worldwide shift away from desktop machines towards portable computers boosted sales of notebooks by 49 per cent from a year before. Overall PC revenues grew by 30 per cent.

    HP has been benefiting in particular from a consumer-led adoption of technology in emerging countries, said Mr Hurd. PC sales in China, the company’s third-biggest market, more than doubled from a year ago.”

  4. OK, so has someone been reading this blog in IBM? What gives with their share price now? You wrote this back in November, 2007 and now, May 2008, the share price is powering ahead.

    It was around $100, and is now on its way to $130. Is this your doing?

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