When IBM stock stood at about $100 three years ago, I expressed doubts that the necessary strategic product plans were in place to significantly push up the price. As I write, the price has grown to something under $110, but this increase is entirely due to the steady, if unspectacular, growth of the services business.

Less than ten years ago, if you looked at a typical mid to large cap, you would have seen an IBM mainframe running the core business applications. The users would have had 3270 workstations on their desktops, connected over an SNA network. Today, typically, this mainframe will have given way to a row of Sun application servers, with Oracle managing the corporate data: the 3270s will have been displaced by non-IBM PCs running Microsoft software, communicating over a Cisco based IP network.

It used to be said that "no-one got fired for buying IBM" and IBM used to say that "IBM will always protect customers' software investment in IBM systems." But try telling that to the Head of IT who bought OS/2 and then went back to the board asking to spend the same money all over again with Microsoft - for no obvious business benefit. Imagine the career opportunity; imagine the board reaction. In the mid 90's, when the industry was embracing the LAN-based client/server model for core business systems, IBM was indicating, with its lukewarm attitude to OS/2, that it was not going to compete in this marketplace. And of course it was this same Head of IT (if he still had his job) and this same board who would be taking future IT investment decisions. So, as the client/server model flourished, the table below* shows how IBM's product revenue growth slowed sharply in 1996 and has been flat to declining ever since.

There no longer is any concern about not buying IBM and nobody in IBM now suggests that the company will protect its customers' investments in its systems: an excellent reputation hard won over decades has been casually discarded. And today, as the client/server model expands to accommodate Network Attached Storage and Storage Area Networking, the independent bean-counters tell us that EMC is the leading storage supplier. The once-popular systems solution of S390/SNA/3270 has become a LAN-based Oracle/Sun/Cisco/Microsoft/EMC alternative.

In my opinion, nothing IBM is currently doing in the product space is going to change this. To get its product revenues on a growth path again, IBM has no choice but to accept customer adoption of LAN based solutions for core business systems and bring out a competitive alternative of its own.

Finally, let me mix my metaphors. If Old Man Watson is looking down at what is happening today to the business he built up over a lifetime, he must be turning in his grave. And if he could get back up out of his box again, there is little doubt he would be kicking some ass!

* Annual product revenues taken from IBM's annual reports.

Keep the Faith!