Monday, August 02, 2004

Jonathan Schwartz's Weblog: IBM is in a Pickle (Again)

Jonathan Schwartz's Weblog: IBM is in a Pickle (Again) "
IBM has a problem. The problem is called history, and in its current incarnation it's called Red Hat.
The 'history' to which I refer is the experience of a former IBM CEO, John Akers. Akers and his staff had the wisdom to enter the PC market in its early days, but the short sightedness to suggest customers source their PC operating system from a little company in the Pacific northwest. The company turned into Microsoft, and they continue to generously return the fruits of their coup to their stockholders.
A few years back, IBM and HP both hopped onto the social movement called linux. It's a wonderful movement. But the bad news for IBM is that the vast majority of enterprise datacenter deployments are now occurring on Red Hat's linux. 100 to 1, depending up on where you look. And with Red Hat increasing price, while adding in an application server that competes with WebSphere, IBM's finding itself in the uncomfortable position of having lost control of the social movement they were hoping to monetize. They're beginning to look like the IBM of Mr. Akers's era - having missed the forest for a tree, and finding themselves without an operating system.
IBM is in a real pickle. Red Hat's dominance leaves IBM almost entirely dependent upon SuSe/Novell. Whoever owns Novell controls the OS on which IBM's future depends. Now that's an interesting thought, isn't it?
But if IBM preemptively acquires Novell/SuSe, the world changes: linux enters the product portfolio of a patent litigator not known for being a social-movement company. But where else will IBM go? With it's current market cap, Red Hat seems unacquirable - but absent action, IBM's core customers will be eroded by Red Hat's leverage. And Sun's ability to leverage our open Solaris platform (on industry standard AMD, Intel or SPARC), or Java Enterprise System, even on IBM's hardware, gives us a significant - and sustainable - competitive advantage. With the demise of AIX, IBM is once again vulnerable.
Me, I'd keep a close eye on the Novell/SuSe conversation. If IBM acquires them, the community outrage and customer disaffection is going to be epic... but where else does IBM go?"
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