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A Critical Look at IBM's On-Demand Computing Marketing Campaign

By Christopher Koch

July 01, 2003 — CIO — A CEO watching a football game or a golf tournament on TV today is reminded during the commercial breaks of something about his IT infrastructure. He’s reminded that it’s a mess.

The bearer of this bad news is IBM. The message embedded in its ads (once you finish laughing at befuddled businesspeople peering through "magic business binoculars" or examining the "universal technology adapter") is simple: Your IT is broken, and you need IBM, the biggest technology company in the world, to fix it.

Now CIOs watching those ads know that IBM can’t, in fact, clean up the mess they live with every day—the costly proliferation of hardware and software that doesn’t work together; the shrunken staffs asked to manage more applications running on servers that typically use only 10 percent to 20 percent of their computing and storage capacity. They understand that IBM’s "e-business on-demand" proposes to solve those problems with technologies that are either in their infancy or so numbingly complex that they’re years away from being applied by the typically risk-averse Fortune 2000 company.

Unfortunately, CEOs and CFOs don’t care about any of that. All they know is that their IT costs—which are now more than 50 percent of the average Fortune 500 company’s capital costs—are throbbing on their balance sheets like big red sore thumbs. All they know is that they are facing a crisis of cost and complexity. And every time they see those IBM ads, it brings it all back.

But IBM’s on-demand vision is not going to bail CEOs out of their predicament—at least not yet. More than a year ago, American Express outsourced much of its IT group to IBM in what was hailed as the first example of IT as an outsourced utility. But it is not a utility. Amex’s computing resources are not mixed into a vast pool to get giant economies of scale, like electric utilities do. It is a variable pricing arrangement in which Amex pays a floating rate for computing power from a bunch of existing machines that are fully dedicated to Amex. That’s outsourcing with a pricing twist.

"IBM does support and the data center," says Amex Vice President and CIO Glen Salow. "We do everything else—like application development and architecture." Stripped of its on-demand hype, what you get with IBM is outsourcing, and outsourcing is what it has always been: a risky strategy that according to numerous surveys fails to achieve either better service or reduced costs 50 percent of the time.

 

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