First mover in cloud computing solutions for enterprises
Strong competency in acquisitions
Integration of products and services
Expensive service and software solutions
Focus mainly on large enterprises
Expand services and software divisions
Increasing demand of cloud based services
Increasing competition in the cloud computing market
Slowing growth of world economy
First mover in cloud computing solutions for enterprises. IBM has moved to cloud computing in 2007 with its “Blue Cloud” program, which was designed to offer hardware and software solutions for enterprises that were willing to have their own private cloud. Since then the company has become the first reference point for enterprise cloud solutions in the cloud market. Unlike many other companies in the cloud market, the company has been offering the broadest range of software and services in one place.
Brand reputation. IBM has a significant market reach all over the world in all of the markets it operates. Company has also been awarded as #1 company for leaders; #1 green company worldwide; #2 most respected company; #5 most admired company; and has received many more awards This has resulted in a very positive and strong brand reputation. According to Interbrand, IBM brand was value at $75.5 billion in 2012 and was the 3rd most valuable brand in the world. Brand reputation significantly influences consumers’ decision to buy the product and IBM clearly benefits from that.
Diversified business. IBM segments its business into 4 divisions: Hardware, Software, Services and Financing. In 2000, the company was earning 35% of its income from hardware sales, where profit margins are low and future market growth is slow or negative. IBM has diversified from hardware to software business, which is expected to generate 50% of company’s income by 2015. This shift will result in lower impact of the negative trends in hardware market and higher profitability from sales of software and services. The company has also diversified geographically and now earns more than 60% of its income from outside US. IBM heavily invests into China and the rest of Asia to increase the geographic diversity of its income.
Strong competency in acquisitions. Over the last 13 years, from 2000 to 2012, IBM has acquired more than 140 companies in strategic areas including analytics, cloud, security and commerce. This has led to substantial growth in software and consulting offerings from IBM and established the company as a leading software and consulting provider for enterprises. IBM also expects to invest $20 billion over the next two years on acquisitions to strengthen its product portfolio even further. Company’s competence in successful acquisitions is the key advantage other companies, like HP, currently lack.
Integration of products and services. IBM offers hardware (servers, storages), software (enterprise content, service and information management) and services (cloud, software, data centers) all related to each other, which enable the company to provide one stop solution for enterprises and integrated product for the customers.
Expensive service and software solutions. IBM offers expensive integrated custom solutions for enterprises that want to build reliable IT infrastructure in their companies. This often involves buying hardware, software and services from IBM at the same time, which is very costly expenditure for any size of enterprise. Such an infrastructure investment is often postponed in times of uncertainty or slowing economy growth. This weakness was evident over the last few years, when IBM struggled to cross sell its products and saw decreasing revenues in the same period.
Focus mainly on customized products. IBM focuses on providing customized solutions for large and medium enterprises. This is a very profitable business model but captures only a small share of the market. The rest of the market is often satisfied with off-the-shelf software products and services. The lack of these products makes IBM less approachable by the rest of the market, where competitors like Oracle and SalesForce thrive.
Expand services and software divisions. IBM provides various services (cloud, security and infrastructure) and enterprise solutions (servers, networking and storage), which are the most profitable IBM’s businesses at the moment. The company should focus on growing these divisions as they promise better growth opportunities and higher profit margins.
Increasing demand of cloud based services. The cloud computing market is expected to grow by an average of 22% each year from 2011 to 2020. By 2020, the market is expected to reach $240 billion value. Currently, IBM is offering many services related with cloud computing and is well positioned to benefit from the growing market.
Increasing competition in cloud computing market. Cloud computing market is new and lucrative market that has a lot of growth potential. The possible profits attract many newcomers and startups and threaten to take the market share from the incumbent IBM.
Slowing growth of world economy. As mentioned earlier, IBM sales heavily depend on the enterprises’ willingness to make huge investments into IT infrastructure, which is far from the first option during the times of slow economy growth. While this scenario is not forecasted for the whole world during 2013 and 2014, some regions, like Europe, will still struggle to grow.