IBM is clearly taking aim at Oracle and HP in what it calls "competitive displacements" in a move that illustrates how hardware is an entry point to selling more technology wares to customers.
When Oracle bought Sun Microsystems there was a good amount of head scratching. Hardware?!? Today it's clear that Oracle wants to use high-end hardware---notably its Exadata and Exalogic systems---to sell more databases and applications. In other words, Oracle's hardware business is all about software. HP has a similar plan except hardware leads to services deals, managed print arrangements and other cross-selling opportunities.
For IBM, hardware---the second quarter was driven by mainframes and servers---pulls along software and services. Once you're on Big Blue's platform, additional opportunities arise.
With this backdrop, the context of IBM's talk about the competitive landscape is notable. You can almost picture IBM forming a swat team solely focused on finding ways to tear out HP and Oracle gear more efficiently. This hardware battle is about turf in enterprise data centers as well as the companies that are building cloud services. Think of the hardware war as a land grab among cloud computing farmers. IBM and HP want to be the Monsanto of cloud computing.
IBM on its second quarter conference call almost sounded like it was talking a little smack---at least for Big Blue. Wall Street is used to plenty of bluster from Oracle about competitors, but Mark Loughridge, CFO of IBM, was returning some fire.
Here's a survey of the primary comments about hardware competition from IBM.
On Netezza vs. Oracle Exadata, Loughridge said:
Our distributed database had another terrific quarter with strong double-digit growth. Netezza again performed well. Transactional volumes were up 70% year-to-year. IBM Netezza has more than a 10-times price performance advantage over Exadata for running analytics workloads. Since its introduction in 2009, when going head-to-head against competition in proof of concepts, the Netezza appliance has an 80% win rate. This quarter, we have expanded the number of proof of concepts by 60% year-to-year.
On poaching Unix market share, Loughridge said:
Power Systems grew 12%, driven by strong growth in both entry and high-end systems. We again extended our market leadership this quarter, the 13th consecutive quarter of year-to-year share gain. IBM's strong performance accounted for all of the Unix industry's 5% growth. We continued our success in competitive take outs. This quarter we had over 250 competitive displacements, which resulted in over $300 million of business. Roughly 60% of this came from Oracle, and 30% from HP. Since the beginning of 2009, IBM drove nearly 2,300 competitive displacements for about $2.3 billion of business.
That comment above, which came earlier in IBM's earnings conference call, naturally sparked analyst interest. The message from IBM was delivered. An analyst asked Loughridge about the rate of rip-and-replace jobs. After all, analysts were wondering about Oracle's hardware momentum during the software giant's most recent earnings call. Loughridge also noted IBM's plan to take on emerging markets.
Since the beginning of 2009, we're talking about 2,300 customers, $2.3 billion of business that we have pulled away from our competition with 60% of that Oracle, and 30% Hewlett-Packard. We have had growth in the UNIX business now for two quarters in a row, 8% in the first quarter, 5% in the second quarter, all of that growth was driven by IBM. If you look underneath it, not only are we getting very good pSeries performance from strong deals within the major markets, but, boy, we're getting really strong performance in growth markets.
Within the growth markets, we're expanding that platform into new customer sets. I think the pSeries is going to be an ongoing source of strength, and when you kind of divide it down by the elements, we had more than 20% growth in the high-end of pSeries, the entry model pSeries, that more than doubled year-to-year, so it is a pretty strong play. It's growing very well in the marketplace, and I think we have done a good job versus the competition, but we've also done a good job as we expand that marketplace, especially in growth markets.
What's the big picture in this hardware war? Selling more of the IT stack. Hardware is the appetizer, but every tech vendor wants to sell you more high margin goods. Loughridge summed up the importance of hardware to IBM's software business.
Software now has the opportunity to continue to expand off the new placements, the new flags that we have planted on a global basis, in our hardware base of business, so it is not as if the minute you close that hardware deal, all of your software rolls into the account. That software rolls in over time, and it has opportunity from those new placements.
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