A Blog by Jonathan Low


Mar 27, 2017

IBM Is Betting the Company on the Cloud, AI - and Blockchain

The strategy is to be the go-to suppliers of the tools that enterprises require to prevail in the world they anticipate - and to disrupt those with whom they compete.

The challenge is being not necessarily first, but best. JL

Jason Bloomberg reports in Forbes:

The big picture here is business transformation – most notably for IBM, but also for its customers. Such disruption drives IBM’s bets. “We want to give disruptors tools so that they’re disrupting with IBM technology. Our job is to help prepare you for what you will become. In my mind, you will become a cognitive enterprise. It will separate the winners and losers.”
At the massive IBM  InterConnect conference, over 20,000 of Big Blue’s fans packed Las Vegas’s Mandalay Bay to hear about the company’s transformative, three-pronged strategy.
The bet-the-company story for IBM: Cloud, Artificial Intelligence (AI), and Blockchain.
While IBM still maintains numerous other business lines ranging from mainframes to middleware, these three Big Bets are truly Vegas-worthy – yet as with most of the bets in Sin City, the odds may very well be against the vendor.
Rometty Throws the Dice
IBM Chairman and CEO Ginni Rometty laid out IBM’s strategy at a packed keynote. “The IBM Cloud is the platform for the next era of business,” Rometty said, expressing the central theme of the keynote.
The IBM Cloud combines the Cloud Foundry-based Bluemix Platform-as-a-Service environment with SoftLayer, IBM’s public Infrastructure-as-a-Service Cloud. But the key to IBM’s Cloud strategy is its reliance on AI. “IBM Cloud is cognitive at the core,” according to Rometty. “You’re going to want a cloud that has a full range of cognitive capabilities.”
IBM has dubbed its AI offering Watson – a powerful cognitive computing engine that pervades everything IBM is bringing to customers. Not only does the IBM Cloud provide APIs to many Watson-based services, but the Cloud’s security infrastructure depends upon Watson as well.
David Kenny, Senior Vice President of IBM Watson and Cloud Platform, laid out IBM’s strategic ONE Architecture consisting of four layers: Cloud, Data AI, and Applications, as the image below shows.
The ONE Architecture is remarkable in two ways: first, AI (in the form of Watson) represents an entire layer, indicating the breadth of IBM’s bet on the technology. The second remarkable aspect of the architecture is what it’s missing: most of the traditional layers of a strategic technology architecture, like databases, middleware, and the like – now all rolled into the Cloud.
Data themselves, however, remain an integral part of the architecture. “Our strategy is data first: data diversity across public, private, and licensed data,” Rometty explained. “The other thing we uniquely do is data control: controlled access, data locality, and data isolation. We can guarantee you that your insights are your insights.” (Emphasis hers.)
IBM: Peddling a Box of LEGO Blocks?
IBM realizes that if it weren’t for Watson, much of the IBM Cloud would consist of commodity offerings that would struggle to compete with services from the likes of Amazon.com AMZN -0.22% and Microsoft MSFT +0.12%. What, then, does Watson truly bring to customers of the IBM Cloud?
The answer: essentially a box of composable tools, exposed via APIs. “The remit of the IBM Cloud is to provide APIs and a bundle of cognitive insights,” explained Tom Eck, Chief Technology Officer of Industry Platforms at IBM. “We have an API-first philosophy.”
However, IBM faces two enormous challenges with this ‘box of LEGO blocks’ approach.
First, immense effort is required to prepare Watson for use, belying the simplicity of such plug-and-play cognitive capabilities. Secondly, it’s not clear whether most of IBM’s large enterprise customers really want Big Blue to deliver components they have to assemble for themselves.
Watson: Right Race, Wrong Horse?
The key to Watson’s impressive Jeopardy!-winning capabilities is the fact that people must train the engine: a complex, laborious, and data-intensive process – not to mention expensive. Furthermore, once a particular Watson instance has been trained on a particular ‘corpus,’ or body of information, that instance is now only good for making sense of questions relevant to that corpus.
Nevertheless, for problems that Watson is well-suited to solve, the approach unquestionably yields impressive results, whether it be for winning game shows, supporting cancer diagnoses, or saving people money on their taxes.
In fact, H&R Block HRB -1.49% is a notable success story, just in time for tax season: notable, perhaps, because of the joint IBM Watson/H&R Block Superbowl ad last month.
Watson supports tax advisors in the company’s retail locations, helping them to find the most deductions for customers. However, getting Watson up to speed was a significant effort. “Watson has ingested about 600 million data points before we started,” explained Bill Cobb, CEO of H&R Block. “It also learned the tax code.”
This enormous commitment of person-hours from highly qualified professionals as well as vast quantities of data makes Watson more of a consultant’s tool, best suited for selling the time of IBM consultants, more so than a modular, LEGO-block style plug-in for customers to incorporate directly into their own applications.
IBM tried to downplay this drawback at InterConnect, but compared to many of the more innovative AI technologies on the market today that don’t require the same kind of labor-intensive training, Watson comes across as being an earlier generation of AI technology. After all, its famous Jeopardy! win was in 2011.
AI, therefore, may be a good bet, but it’s not clear that Watson itself is. “IBM is betting on the right race,” quipped Glenn O’Donnell, Vice President and Research Director at Forrester Research, “but they might be betting on the wrong horse.”
IBM’s Longshot Bet: Blockchain
The most surprising third of IBM’s bet-the-farm strategy, however, has got to be its bet on Blockchain. First, a definition: “Blockchain is a shared, immutable ledger for recording the history of transactions,” according to the IBM web site. “It fosters a new generation of transactional applications that establish trust, accountability and transparency.”
The original Blockchain forms the backbone of the Bitcoin cryptocurrency, but IBM’s Blockchain effort has little or nothing to do with Bitcoin. Instead, IBM predicts that Blockchain will be an essential tool for “financial services, supply chain, and global logistics,” according to Rometty. “I believe Blockchain will do for trusted transactions what the Internet has done for information.”
Powerful words, considering IBM can count the number of Blockchain customers on one hand, and the industry at large is still unclear on how best to apply the novel technology.
Nevertheless, IBM is doubling down on Blockchain, contributing to and supporting the Hyperledger open source Blockchain project. “It’s the fastest growing open source project the Linux Foundation has ever had,” Rometty points out.
The technology already runs on the IBM Cloud, as well as IBM’s z Systems mainframes. Blockchain on the mainframe, in fact, is where IBM is able to deliver the technology’s best performance. “We’re already talking about ten thousand transactions per second, or maybe more,” Rometty says.
While IBM is too circumspect to claim that Blockchain will actually drive mainframe sales, it is hoping that the technology will become mission-critical to its current mainframe customers, in particular in financial services.
And the Winner Is…
It’s clear that Rometty has taken the lesson of the Innovator’s Dilemma to heart, and is willing to jeopardize existing revenue streams in order to place large bets on innovation. Only time will tell how good those bets are, of course – and we can all argue over the odds.
The big picture here, without question, is business transformation – most notably for IBM, but also for its customers. Such disruption drives IBM’s bets. “We want to give disruptors tools so that they’re disrupting with IBM technology,” explained Suzanne Livingston, Watson Financial Services Offering Management Strategy & Operations for IBM.
The CEO summed up her vision for IBM succinctly. “Our job is to help prepare you for what you will become,” Rometty explained. “In my mind, you will become a cognitive enterprise. It will separate the winners and losers.”
Which of the two characterizations will apply to IBM remains to be seen. You pays your money and you takes your chances.


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