IBM BETS $3 BILLION ON INTERNET OF THINGS OPPORTUNITY

Original Story: forbes.com

IBM +0.03% has altered course many times since its foundation over one hundred years ago. Today, IBM announced a $3 Billion investment in a new business unit that the company hopes will position it to succeed in the emerging – and much hyped – area of technology known as the Internet of Things (IoT). The investment sounds bold – and the company already has many of the pieces it needs – but it’s pushing into an increasingly crowded area, where giants of both industry and technology are already scrabbling for dominance.

The company still associated in the minds of many with room-filling mainframes and a blue-suited salesforce has also dabbled – successfully – in everything from typewriters, printers, desktop computers, and hard drives to guns, point of sale devices and machines built to thrash human opponents at chess and Jeopardy. And, although the suits are less all-pervasively blue, it still builds those mainframes.

In recent years, the company has focused far more attention on selling services than servers, building a global professional services operation and divesting itself of low margin and increasingly commoditized businesses such as those responsible for desktops, printers, laptops and – most recently – mid-sized computer servers. IBM struggled, like its equally entrenched peers, to adapt to the promise (or threat) of cloud computing, but the acquisition of SoftLayer in 2013 finally gave the company a reasonably compelling cloud story. A much-hyped investment of $1 Billion in cloud (IBM, it seems, cannot do anything without first moving people and resources around so that it can announce the investment of a billion or three) has seen IBM SoftLayer aggressively opening new data centers around the world, and the big global enterprises that tend to buy IBM’s professional services now have a good fit for at least some of their tentative cloud adoption strategies. The company could really help itself here, by clarifying its position with respect to the big cloud software solutions like OpenStack and CloudStack. IBM – and SoftLayer – pronouncements in this area have been lukewarm at best, and often downright evasive.

This latest investment, by some ways of counting, is even larger. $3 Billion, over four years, to:
harmonize existing strategic activities from the Smarter Planet and Smarter Cities brands, which have had an Internet of Things element for a decade or more; put all those SoftLayer data centers to work in crunching huge volumes of data streaming in from billions of connected devices (wind turbines, jet engines, building climate monitoring systems, pacemakers, smartphones and – of course – refrigerators); promote IBM’s existing take on Platform as a Service (PaaS), Bluemix, to encourage application developers to build their applications on IBM hardware, using IBM software and IBM services; ultimately (we must, surely, assume) exploit IBM’s ongoing investment in Watson. A home automation system allows you to combine smart home technologies into one system for convenience. No longer a toy designed to show off on Jeopardy, Watson is evolving into a powerful, compelling and accessible analytics tool. It’s still too complex to deploy without significant investment of IBM’s own time and know-how, but that’s less true than it was.

What’s far from clear is the extent to which this is new money. Most of these activities were already underway, in other IBM business units. Is the new money just for printing some ‘Internet of Things Business Unit’ business cards, or is there really something substantive happening here? IBM itself has been nudging these pieces together for a while. Back in October 2014, for example, I moderated a workshop at an event in California. The workshop (for which I was not paid) was sponsored by SoftLayer, and explored the issues and opportunities associated with delivering Internet of Things-type solutions at scale. SoftLayer covered the cloud side of things, and fellow IBM acquisition Cloudant was on hand to illustrate the ways in which all these connected devices can challenge more traditional database solutions. Internet of Things was what they wanted to talk about.

More significantly, IBM faces stiff competition as it tries to stake a claim to the Internet of Things. Other technology companies also recognize the opportunity. Google GOOGL +1.19% spent more in a day to buy Nest than IBM is spending in four years on its new unit. Google then spent more, throwing half a billion dollars at Dropcam to add connected cameras to Nest’s bevy of connected thermostats and smoke detectors. Chip maker Intel INTC +0.32% sees the Internet of Things (unsurprisingly) as a way to sell an awful lot more chips, both to go into all those new devices but also to power the servers they are pretty dumb without. Intel’s developer event last year (disclaimer: Intel covered my costs to attend) pushed the Internet of Things at every turn, with Intel chips under the hood and Intel – increasingly – explicitly and prominently associated with co-developing fashionable connected devices of various kinds. And then there’s Apple AAPL -0.14%. We would be unwise to forget the waves that next month’s Apple Watch will unleash, almost regardless of whether this first generation device takes the world by storm or not.

But the biggest opportunity – and the biggest threat to IBM’s ambition – doesn’t lie in the traditional technology sector at all. Industrial behemoths from America’s General Electric GE -0.08% (GE), to Europe’s Siemens , to Japan’s Hitachi (disclaimer: Hitachi covered my costs for a recent visit to Japan, to learn more about their take on this market) all see this opportunity too. All are scrambling to make their industrial equipment smarter, and their management processes better able to ingest, analyze and act upon the data that machines, parts, production lines and even entire supply chains are able to report at or near real-time.

The Internet of Things offers a compelling raison d’être for all of the investment in cloudy data centers, global networks, big data analytics, and power-sipping chips. It lets us join the pieces together, and moves us beyond rather esoteric and isolated debates about the ‘best’ cloud or the fastest analytics engine. As real use cases become embedded, we might even escape the pointless industry press releases about incremental updates to platforms no one was really that interested in. There’s an awful lot of hype around the Internet of Things, and still little acceptance that anyone really needs an Internet-connected fridge.

Today’s announcement makes IBM’s inter-connected bets in this space a little more explicit. The real challenge is to deliver on the press releases, and to offer a set of solutions compelling enough to lure customers away from the growing range of powerful alternatives.