Fireside Chat with Jim Whitehurst, IBM

It's great to be here.

Yeah, sure. So, you know, one of the things, I'm obviously relatively new to IBM as I came in through an acquisition, is the way IBM thinks about strategy is very expansive. So we really look at what is the need that enterprises have from technology and what's the state of technology, and we're willing to fundamentally change kind of who we are and what we do to make that real. So just to kind of rewind quickly to set the context, if you go back, as you said, 10 years ago, I'll say 20 years ago, we were in the context of client-server and hardware. So you had all this variety of hardware, best-of-breed applications, so you had this many-to-many relationship as people were implementing ERPs and CRMs. So you had all this complexity in the data center. And if you recall, that was also back when, you know, Nicholas Carr wrote his famous article, 'IT Doesn't Matter,' it's not about competitive advantage. So anybody in that world, IBM, in order to meet enterprise clients' needs, built the biggest middleware software portfolio, you know, ever with WebSphere, built a systems integration capability to be able to weave all that stuff together to, you know, implement SAP. And then because CEOs didn't see it as a real source of competitive advantage, we also built a big managed outsourcing business to actually run it for clients. So CEOs would say, 'I want a best-in-class ERP system, IBM build it and run it, here are the keys.' If we fast forward to where we are today, at the core of our strategy is a recognition that, hey, the context of technology has changed. It's now about how you ingest innovation quickly, and there's innovation coming from so many more places. It used to be two or three vendors in the category. Now it's open source, it's SaaS vendors, it's traditional vendors, it's startups, it's public clouds. And the whole kind of use of technology now is around more innovation than automation of kind of traditional processes. And by the way, every CEO thinks technology is core to their competitive advantage, so nobody wants to hand the keys to anybody to do that. You know, ask a CEO, 'Do you want to hand off or outsource your website or mobile app to anybody?' and they'll look at you like you're crazy because it's core to how they create value. So in that context, our strategy now, as we talked about, manifests itself, we call it hybrid cloud and AI. But what it really is saying, how do you think about an architecture that enables an enterprise to ingest innovation from wherever, whether that's from a hyperscaler, from a SaaS vendor, from open source, from a traditional vendor, in a safe, secure, reliable way. And recognizing that you can't build an application now that's not heavily reliant on AI because it's affecting not only applications but business processes. So we call our strategy hybrid cloud and AI, but at its core, it's recognizing the use of technology is different and the nature of the technology that enterprises are using are different. And that goes all the way into a retooling of how we go to market. So it's less about 'we'll do it for you' and more 'we'll do it with you.' And so it pervades the entire company in terms of the strategy and how we look to deliver great.

Yeah, so look, I think hybrid cloud, the issue with hybrid cloud is it is a very generic term, and it typically refers to 'I have workloads on-premise and I have workloads in the cloud.' So almost anybody can talk about their products being hybrid cloud because you can say what runs in both places or 'I can provide you visibility into applications both places.' Our very strong belief is that to truly be able to ingest innovation from anywhere in a safe, secure, reliable way, you need to have a common platform that runs everywhere. So at the core of our hybrid cloud strategy is a platform that runs on every major cloud, it runs on-premise, it runs virtualized on major hypervisors, it runs on the mainframe, it runs on ARM chips. Right, literally, so it can run from the factory floor up to Amazon. And if you don't have a common platform, you really can't move applications around, you can't necessarily source innovation. We learned that at Red Hat with Linux. Like, Linux isn't Linux, it's Red Hat Linux. You know, it became the standard because it could run everywhere. And so we have this platform that runs everywhere, and that was part of, that was the Red Hat acquisition, was to get a platform that's fully open source, runs across chip architectures, runs across every major public cloud and kind of deployment models on-premise. What Cloud Satellite is, and these are all part of an architecture, is, okay, well that's great, you can now run an application anywhere, but when you're thinking about building and managing an application, how do you go about doing that if you're using different database services everywhere you are? And to really avail yourself of the power of cloud requires automation. It's not just where you're running an application, it's how you're running it. Hyper-automation, very, very standardized. And so the nice part about the focus we had on this platform that runs anywhere is IBM's cloud is built on that. Well, so guess what, we can now take all of our cloud services and say run them wherever you want to run them. You want to run it on Amazon, run them on Amazon. You want to run them on, you know, Google or on-premise or on the edge, you can run it anywhere because it all runs on a common platform. How that's different is other cloud providers have a whole set of services but they're typically wedded to their underlying platform. And so, you know, Amazon, and by the way, Amazon is much more of a partner than a competitor because our platform runs on the, they run our platform as a managed service, right? So they're a great partner of ours. But they can land something like Outposts on-premise but it has to be a full Amazon stack. Where we can land, because we have the platform, land anywhere. And so you can consume at different levels. You can say, 'I'm going to run the same platform everywhere and I'll manage it,' or you can say, 'Hey IBM, I want to be able to run something across on-premise and Amazon, I want one control plane to be able to do that, one security framework to be able to do that.' And we can do that wherever, on-premise, on Amazon, on IBM Cloud. So that kind of hybrid model, but it's not just 'we can see the application,' it's truly running the same infrastructure is unique, but I think required to truly be able to consume innovation wherever you want to consume innovation.

Yeah, basically, you can run our platform anywhere. It's like the operating system of the future, if you want to call it, container platform, that it needs to be able to run everywhere. Because if you want to consume services on Google, yes, you can call them from on-premise, but if it's at all data-heavy, you need to run the application on Google. And so, well, what if you are mainly wedded to Amazon or IBM Cloud? Well, that begins to be difficult. Where if you have one common fabric, where you choose to deploy an application becomes pretty frictionless. Obviously, another example, you know, it's an IBM-centric example, but you know, people do machine learning a lot on cloud because of the characteristics of cloud and scale. But in order to do that, you got to move a lot of data to the cloud. We now have a bunch of clients who say, 'Well, I get all my data is generated on my transactional systems on the mainframe.' Well, now you can frankly run those same ML algorithms at night when the mainframe is being used less. Developers never even need to know they're running on the mainframe, right? So by creating that kind of hybrid abstraction layer, it allows developers to move faster because they're not really worried at all about deployment model. And then ultimately, you can choose where and how you deploy applications on what makes most sense, whether that's for security, compliance, performance, economics. But you can't do that if you can't move the application, and you can't move the application if you don't have a common platform.

Yeah, so the managed service business, as I talked about, was built in an era where generally enterprises were happy to let someone else kind of run their infrastructure for them. And that's still a really important business. We have a ton of infrastructure out there that has that. The nature of that complexity, the issue with that business is it's just very, very different than where we're going now. So it's around how do I manage heterogeneity in the most effective, efficient way, where most of what enterprises are looking to do now is say, how do I have a homogeneous infrastructure that lets me move faster? And frankly, the way you manage those businesses are different. My simple analogy is running a managed service business, which is about trying to reduce variance, manage complexity, feels a lot like running Delta Airlines. And you can see it when we have management meetings, where building a product business, which is kind of the rest of IBM, feels like running Red Hat. But those are different cadences, they're different investment profiles, different kind of even profiles of individuals are going to be successful in those different types of roles. And trying to do that all in one company has become, it's just, there's not a lot of synergy now as we're trying to drive feature velocity and innovation in one and efficiency in the other. And as the relative synergies get to be less, the disenergies are obvious in terms of the whole different cadence, investment profile. So we thought it made sense to separate those, so the managed service business can focus on automation and kind of driving operational efficiency, and you know, Kyndryl, or IBM, can focus more on, you know, innovation and kind of more forward-looking, you know, kind of where's the world going, how do we invest into that.

No, we're still on track to get it done. We, you know, the beauty of being a very large technology company with a lot of facility and technology, I think within, you know, a week or two, we had 95% of our people up and working remotely and had the capability to do that in terms of the network and security very, very quickly. So we're right on track for that. There really hasn't been a significant impact associated with COVID in that timeline at all, which is good.

Well, look, so there is a substantial amount of optimism. We see that when we talk to our clients, we see that in, you know, various CEO surveys. And, you know, what used to be 25 years ago when people were optimistic, you saw a lot of CapEx. Today, when leaders are optimistic, you see a lot of spend on technology because it's almost, it is today's CapEx, even if it's manifested in, you know, in OpEx, but investments in technology. So we feel really good about the spending profile that we are seeing as we get into the year. We're engaged in a lot of really transformative discussions with our clients. You know, there's a kind of a confluence of several things. I think there's a lot of optimism, which was great to see. There's a sense of how we're going to work is going to change, right? We're not going to go back into the office five days a week. And so how we need to work is changing. And as AI is really kind of, I'll say, kind of coming of age or it's maturing to the point that it kind of moves out of the labs or bespoke applications, you know, thinking about, you know, intelligent workflows as we call them, you know, how you really think about robotic process automation, how do you really infuse that with deep AI is coming into its own. And you put those three things together, you know, our discussions about transformation with clients are really blossoming right now.

Well, I think there are several things we can unpack underneath that. So first off, this hybrid cloud architecture has an S-curve adoption impact. And what I mean by that is you land the architecture, you're typically not onboarding traditional applications, so it's as new applications get built or as applications get refactored, they ramp on. And so if you think about the shape of the revenue curve, you know, you do all the hard work to land OpenShift or our hybrid cloud platform as the standard, great, you did that, now you see almost zero revenue, right? And then it builds as people put applications. And so we feel really good about how we've landed the platform, you know, by far the largest install base of a container platform in the market. We feel good about the initial adoption we're seeing with clients, so we feel good about where that overall stands. I will say, this is kind of new to me as being part of IBM, is the perpetuity license model is relatively new to me because Red Hat was one of the original subscription-oriented models. You know, I do think our progress gets frankly masked in the fact that people don't want to do big multi-year ELAs in a really, really down year, right? And so, you know, we talked about that a little bit on the earnings call, is that some of those kind of large renewals don't renew in the same way when, you know, people are holding money a little dear. So frankly, I do think some of our actual progress, if we look at kind of workloads and selections with our clients, are obscured by a business model that's more lumpy. And so that's one of the reasons you'll get us versus peers, even though we're seeing really good metrics with Red Hat, which show through, and obviously that flows through to all of the services and other components, it hasn't shown up as much as we'd like in the IBM numbers yet. But, you know, as we said, we'll see that progress through this year and certainly the next year.

Well, yeah, what we said is you should expect, say, next year to see mid-single-digit growth numbers, and obviously it's a track to get there. So in the back half of this year, you know, you should see traction, and then next year you should see that. So we're not talking, you know, let us promise multiple years out, right? At this point, we can see where and how we're landing the platform, traction with clients, so we can kind of look out over that period of time and feel pretty confident that we'll grow in 2022, certainly.

Yeah, I mean, I think the two biggest blind spots that we see is, first off, the developer is now keying, right? Because we're all about how do we move at a faster pace, how, you know, etc. And, you know, developers in moving fast want choice, then they want variety. Well, variety and security are a tough combination. You know, the analogy I would make is the average security kind of incident isn't, you know, spies shooting in through the skylights, it's somebody checking every window, and if you have a million windows, the likelihood that one got left unlocked is high, right? And so this real focus on variety and self-service has led to, you know, a whole set of challenges for security. And frankly, one of the reasons we keep talking about having a common one platform, having a common operating model across that, I think matters. So that's number one, it's how do you ensure the feature velocity and variety and choice that developers want, but still be able to do that in a safe, secure, reliable way. Frankly, I think the other thing is ensuring that we have tech players that have a shared sense of responsibility. In other words, it is often the case where, not SolarWinds, but many of the things you look at, each component, each vendor can argue, 'Oh, what I did is totally safe and secure.' Well, what I did is totally safe and secure. It's when you plug the things together is where the seams, you know, kind of start to show. And so I do think vendors need to step up and say, 'For my clients, I have a shared responsibility around security that goes beyond is my product safe or did I do this securely, into it's jointly responsible.' I think one of the things, the reasons IBM has such a strong position in security and, you know, kind of is often affiliated with trust, is we do go into every engagement around security first. And even if it's not components of our stack, you know, we are jointly responsible when there's a problem, and we think of it that way. And I do think we have a lot of vendors who are running saying, 'Here's my piece, here's my piece, here's my piece,' if you don't think about how those plug together to offer the holistic solution, that's where the security issues have. And we need every vendor to step up and say, 'It's not just about me and my piece, it's about all of us and how my things are getting used in a joint set of responsibilities.' I mean, the analogy would be, and which we see now, if you want to hop into politics, it's like what responsibility do social media platforms have for the content on their platforms? It's not too different. What responsibility do, you know, technology platforms have for the potential security vulnerabilities that can manifest on their platforms and the way people use them? And I think I'd argue that from an IBM perspective, for security, we're not in social media about saying security, it's like we should feel a shared sense of responsibility for people using our platform to make sure that it is inherently secure, or we work with our clients to do that. And if we don't have that shared sense, you're never going to, from a technical perspective, solve every security problem.

I, well, I think it's necessary. I mean, we, the implications for many of the technologies we have, you know, I think we all need to recognize we don't even fully know those yet. So when you think about something like AI, you know, we've been investing it at Red Hat for, sorry, IBM for, sorry, I've only been gone from Red Hat, so at IBM for years, with AI emphasis on, okay, what are the implications? Is how do you think about bias? And, you know, I think it's great that IBM is stepping up and doing it. Nobody's told us that we need to do that. At some point, shouldn't every company involved in AI need to participate in that, as an example? Certainly, as we think about information and who has access to information, more blurry metadata, so the data about the information and who has access to that, who owns it, who should have the rights to that, those are things that it's hard to ask an industry to self-regulate. But trust in the technology industry is going to be heavily based on ensuring that we have models that people kind of believe in, that ultimately lead to good. If for tech to do good, we have to be trusted. And we're not going to be able to be trusted if we're each on our own doing things. And so I think we welcome a higher degree of kind of scrutiny, regulation, and these really important issues that have implications that, you know, will manifest over generations, that we need to be thinking of now. And there's certainly work done in academia, there's certainly research that IBM's doing, but thinking of having regulatory frameworks and so common standards, I think is critical.

Well, I think that's why, yeah, we need to work together. You know, industry needs to work with government to come up with, you know, responsible regulation that balances, you know, the need to experiment and advance and continue to innovate with the need to protect society. You know, I mean, I don't think the analogy is any different. We could argue, well, is intellectual property law good or bad? I think we have a sense of intellectual property law that protects people at the same time, you know, allows innovation to occur. And so I think we've kind of come across other issues like this in the past and we've had workable solutions. I think saying, 'Oh, government doesn't understand, so, you know, don't look here,' you know, isn't a very satisfying answer.

Yeah, so I think our general belief is the patent licensing model worked well for a long time, but when we start looking at how innovation happens now and ideas build upon ideas, that the patent licensing model, not that it will totally go away, it's not the future of how one monetizes innovation. The future is going to include, you know, joint ventures, it's going to employ different forms of collaboration, different ways to manifest that value. So it's not that we're going to stop doing that, but I think we have an intentional strategy to say, 'Hey, we have amazing amounts of intellectual property, but merely licensing that is probably not the way to optimize that value for IBM, but also for those technologies to have as big an impact as they can have.' So we're working on a whole set of models from starting ventures to JVs to other types of partnerships to better reflect the value of the extraordinary innovations that we see. I will say, as kind of coming in from Red Hat, one of the things that has just been extraordinary to see is that many incredible people and that much money that IBM puts into research and the progress that we've made in all kind of areas. You know, IBM, it's not just around computing, right? Because of our historical semiconductor strength, you know, in materials and so, you know, how you can, you know, recycle plastics in fundamental new ways or battery technologies. And we have some extraordinary technologies that, again, we are looking for the best vehicles to make sure they have the biggest impact.

Thanks for having me.