Our letter to IBM chief Lou Gerstner (ISR
February 6) brought about a flurry of e-mails, both positive and
negative, about the fate of Big Blue vs. nemesis in market value Microsoft.
Here’s a few snippets:
“I have been researching this subject for a while. IBM has never understood
the power of software. And when it had the monopoly power, it let it slip
in the ’80s. Now
Microsoft has got it, and it makes tremendous profits on something as
stupid as Win95.
“IBM has the new chip. But it does not know how to make the profit off of
it. Plus software turns out sweet profits, you don’t have to pay any suppliers
either. And with NT moving upscale in 10 years, there won’t be any other
software company but Microsoft. Unless someone locks them out.
“IBM has to make a computer with its own OS, and ask every cloner to use
the same OS.
YOU have got to lock Microsoft out–its gonna eat you up anywhere, anytime.
It’s playing different rules and a different ball game.”
Reply: IBM tried to jump in the operating system game with OS/2
(that started as a joint venture with Microsoft, by the way). So far
“Windows” has everybody
doing them, dirty or not.
Big Blue Wrecking Crew
“IBM at $100 is a ridiculously undervalued price for a company that is the
world-leading technology enterprise. Although fourth-quarter results were
slightly flat, Big Blue has the strength to rebound quickly and
effectively.”
Reply: Or Microsoft (NASDAQ:MSFT) at $187 billion is more than
slightly amusing. Yes it’s proven to be a great company, but we think
there’s a
lot of “expectation” built into MSFT at that level. The problem may be that
there’s nothing out there challenging it on as many fronts as it’s
deploying products: Internet, cars, travel, investment, media, software,
hardware, even mindshare.
Chips Or Dip?
“I’m a long-time IBM watcher. I’d like to comment on your article. It is
frustrating for me to see example after example of IBM
technological breakthroughs frittered away: highest density rotating
storage, fastest communications over fiber optics, breaking the 1K MHz
barrier, and more.
“There is a huge difference between technological breakthroughs and
productization. The fact is Microsoft has, at best, modest technological
breakthroughs, but it is growing 25%-30% while crushing competitors.
“IBM is shrinking: remove service revenue, real estate, stock buy-backs,
finance
revenue, etc. from the
$80B 1998 revenue. Then 1992 revenue for
information processing, including PCs, is bigger than 1997. IBM had the
whole enchilada, it’s becoming chip dip.”
Reply: I think the letter to Lou was a call to arms to wake up the
Goliath that’s become Lilliputian in some ways, especially with regard to
the Internet. Lotus Notes is behind schedule on features, and there’s scant
else to talk about with Big Blue and the Internet, hence the suggestion to
bag Netscape and Novell.
Big Sun
“I think you’re on the mark with IBM. The speed of the new processor coupled
with Java programming makes for an interesting mix. IBM buying Sun
Microsystems makes even more sense. IMHO of course.”
Reply: Interesting to note that IBM employs more Java programmers
than Sun, last we heard. How’s that for priming the troops for takeover? If
IBM invests heavily in Java, shouldn’t it want to reap 100% of that reward?
Eggcetera
“Eggheads (ISR
February 5) move is hard to call. From its point of view, it’s
the only move it had besides going out of business. But then it’s not
unlike Netscape’s recent moves. The ‘handwriting’s on the Web,’ as they say.
“But e-commerce is a double-edged sword. On the one hand, you have
potentially a
thousand (million?) times more customers. On the other hand, you have
potentially a thousand times more competition when reselling a commodity
like software.
“But fear and uncertainty (plenty of that dealing with new Web companies)
on the part of consumers is the life blood of brand-name loyalty, so
that’s in their favor–but only to a point.”
Reply: Egghead may be a chicken and Web story after all.
