For this episode of the Futurum Tech Webcast I am joined by my colleague, fellow analyst and our VP of business development, Steven Dickens, for a conversation about happenings this week in the tech world.
In this episode, we covered:
- The leadership change at IBM this past week, with widely presumed heir apparent President Jim Whitehurst stepping down, clearly cementing IBM’s CEO and board chair Arvind Krishna’s position.
- The other material changes at IBM, with new leadership and direction in marketing, new leadership in IT, changes ahead with the Kyndryl spinoff and thoughts from Steven (a former IBMer) on what’s ahead.
- BMC Software announcements centered on new capabilities related to security, the Open Mainframe and the newly announced Workflow WiZard tool, and the importance of (and role that) mainframe transformation is to organizations’ success with digital transformation.
- IBM’s acquisition of BoxBoat and how that’s a clear indicator of the company’s focus on hybrid cloud services being key to its future success.
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Shelly Kramer: Hello and welcome to this episode of the Futurum Tech Webcast. I’m your host Shelly Kramer and I’m joined today by my colleague and fellow analyst, Steven Dickens. Hello Steven.
Steven Dickens: Hey Shelly. Good to be on the show.
Shelly Kramer: Always good to be on the show. Well, we are going to actually, I’ll start the show with our disclaimer that we are tech analysts and we are going to have conversations in this show and other shows about publicly traded companies and we have lots of thoughts and opinions and in no way should you take anything that we say as investment advice or anything else. So with that disclaimer, out of the way, we’re going to jump in today. I’m going to talk a little bit about something that’s been in the news the last few days and that’s a leadership change at IBM. And there was a late Friday news dump announcing that IBM president and former Red Hat CEO, Jim Whitehurst was stepping down and this came as a surprise to many as Jim was largely viewed as a likely successor to IBM CEO Arvind Krishna.
And so backstory there. So Jim had been running Red Hat since about 2007, the open source software giant, and he kept his title after IBM’s massive acquisition of the company for $34 billion two years ago. And one thing I noted was that IBM shares were down as of yesterday, about 5% since the company announced Whitehurst departure. And I think that really shows the high regard that Jim was held throughout the investor community and the tech community. So I’m sure that Jim’s next act is going to be an amazing one.
And one of the things I noticed today was in an interview that he did with Barron’s, I think yesterday he indicated that he wants another chance to be a CEO. And he knew that that became clear that that wasn’t going to happen while he was at IBM and he knew that as soon as the board of directors chose Krishna who at 59 years of age is about five years older than Whitehurst. But they selected Krishna to kind of lead them through as their CEO and so he knew that it was probably time for him to make a change. And so I’m really looking forward to whatever it is he does next because he has an amazing track record and I’m sure it’ll be great.
Steven Dickens: Well, I think it’s really interesting that he mentioned that in the Barron’s piece. Typically IBM CEOs check out about age 60 and I know Ginni was due to do that and hung around an extra year for the Red Hat. I know San Palmisano before her checked out at 60. So Krishna being 59 and Jim not thinking the opportunities they had for him was an interesting one for me. That’s how I read it. Being an ex IBMer a lot of us thought that Arvind was going to take the company through the Kyndryl split that’s due to happen. A lot transformationally will be going on within IBM now. Go through that split and then 2022, he’d get that all done and then step down and Jim would naturally take over. So I’m really surprised that Whitehurst has stood there. I thought he would keep his role as president, see Arvind in the spotlight making the big transformational changes that IBM is going through right now and challenge with IBM execs over the last couple of days about it.
They’re surprised as I am that Jim’s not the next person in charge of IBM in the ’22 timeframe. So I think great from Whitehurst’s lee go that the share price dropped within 90 minutes. It took sort of five or $6 off the share price. That must be great that you’re that highly valued. But I think the view within IBM is going to be really interesting. I think a lot of traditional IBM has really excited by Whitehurst. He was taking quite a prominent role in messaging to the IBMers. And I think from the Red Hat side, there was a lot of interest in him retaining that role and being seen as the Red Hat person in the executive ranks at IBM.
So it’s really going to be interesting how those kind of constituencies react to the news. I’d expect that the Red Hatters are going to be quite unsettled by the news of Jim moving gone. And the IBMers correspondingly a little disappointed that such an industry bloominary isn’t going to be in the executive ranks, sort of guiding the journey that they’re on on their hybrid cloud strategy.
Shelly Kramer: Right? Well, you know what? We will see how it plays out.
Steven Dickens: It’s going to be really interesting to see where Whitehurst lands. I mean, he’s on a stellar run and got a lot of runway left in his career. The work he did at Delta as COO was seen as really strong. He took Red Hat to be the first billion dollar source company, the first 2 billion open source, the first 3 billion open source, and then ultimately sold the business out for 34 billion. So he’s going to be a hot property and it’d be really interesting to see where he lands.
Shelly Kramer: He is indeed. And to your point about the Red Hat community, I mean, obviously there’ll be disappointment and sort of uncertainty and everything else, but you know, the reality of it is with any career path, right, there’s never a given, there’s always uncertainty, there’s always change. And so it’ll really be interesting to watch how this transpires, how IBM motors on and where Jim Whitehurst ends up and we of course wish him the best. And so it’d be very interesting to watch. One of the things that I wanted to talk about in this segment of our show is you are a former IBMer for a very long time, we’re still happy to have you as part of our team, by the way. And so there’ve been some other changes at IBM that I wanted you to touch on. Some changes as it relates to sales and marketing structure and that sort of thing. So let’s talk about that a little bit.
Steven Dickens: Yeah. I think if you’re not tracking IBM closely, you’ll see point announcements coming out. They announced a new CMO with Carla Piñeyro Sublett. They announced the new CIO with Kathryn Guarini who used to be my boss actually in a previous role. And you’ll see those as just point announcements, not a lot of fanfare, but when you see them in the aggregate and you see them as a whole, IBM is on a complete transformation. You’ve got the big Kyndryl split going on where they’re spinning off what used to be the global technology services business. That is a quarter of the company, both revenue and headcount wise, about 90,000 people are leaving the business to go and form Kyndryl. That’s about $20 billion a year worth of annual revenue. So that’s significant. That’s meaning and impact on to how they run some of the backend processes. And Kathryn’s having an interesting couple of weeks with the email migration that’s going on chatting to some of the IBM as they’ve had a bumpy ride with emailing calendaring over the last couple of weeks.
Shelly Kramer: Right. You don’t think about this, but when you’re in sales and it’s the month end.
Steven Dickens: It’s half end for IBM as well so they’ve had, chatting to a few former colleagues it’s been interesting trying to trace down purchase orders. So I’ll be watching their Q2 earnings to see whether there was a blip. They just announced razor thin growth numbers last quarter so any blip is going to be material to see whether they squeak over into revenue growth. But I mean, I talked about the marketing, I talked about some of the IT changes. They’re having to carve off a quarter of the company. There’s GTS used to do a lot of the operational management of the IBM systems in GTS data centers. That’s got to be spinate. IBM’s also going through an email change. They’re going through a CRM change. They’ve gone through a sales and a sales and go to market change. So there’s a lot of transformational stuff all going on at once within IBM right now.
And I think what’s interesting for me is this is probably the same scale of transformation that IBM went through under Lou Gerstner, but it’s getting done a lot less press. So I think the piece we did, Daniel and I, on the executive leadership, Jim Whitehurst got a lot of the news and we’ve just talked about that. I think if you watch an IBM closely, there is a lot going on under the surface that’s not getting news. Kathryn Guarini taking over from, from the previous CIO, isn’t really newsworthy, but it speaks to something that’s going on there. Also the marketing changing. They’ve just announced a marketing reorganization, root and branch. Carla came on board. I think about February time. She’s taken some time to analyze the business and I see my LinkedIn changing with all my colleagues over there.
That’s just here to huge marketing reorganization to realign from a product focused and be you focused to conversations with clients. So the really, I think the key takeaway from this really is there is a lot going on at IBM right now. And I think Arvind is undertaking the same scale and magnitude of transformation that Lou Gerstner took in the, what was it? Mid to late ’90s. So it’s going to be really interesting. IBM is being very, very thoughtful about getting back to growth. Everything is growth, growth, growth and I think all this transformation is laser focused on getting back to revenue growth.
Shelly Kramer: One thing I wanted to touch on that, I think that you mentioned either in a conversation or a bit in the article that you co-wrote with Daniel was a change in go to market strategy on the part of IBM and how that may potentially impact customers.
Steven Dickens: Yeah, it’s really interesting. I wrote this at the start of the year. And having been at IBM 10 years, it was a very relationship focused client exec model with a, almost a minor on revenue in how those clients execs were paid and measured. It was very much on relationship metrics and the overall relationship dynamic with their biggest clients. What they’ve done is they’ve rolled out a couple of different segments of how they manage their clients and this was fragmented and various business units would segment clients in different ways. What’s really obvious now is you’re either part of segment one, which is the top 500 relationships IBM has globally, or you’re in segment two. What that means for you as a client if you’re wondering kind of where am I is not much change in segment one. The client exec structure still exists, still very strategic relationship focused.
In segment two however, massive change. A lot of client execs left the business as the transition in January, or got given different roles. And what that means is in segment two, there’s not those sort of almost second tier of accounts if you want to call it that. They’re going to take a technology driven focus. And I think this is a returning to focus from IBM of we need to go and drive some of those technology conversations with our clients, really engage with them and interact differently with them around how they position technology. And I think that’s a competitive response to have some of their competitors, the AWSs, the GCOs, that sort of GCPS that they’re engaging with their clients on a more technology lens and less on a relationship lens and I think it’s going to be interesting.
That’s only sort of six months in for IBM and that’s a massive change. And the lady who rolled that out, Bridget, was one of the people who was announced on Friday that she’s going to be leaving the business. So she was asked to hang around to roll out that change. It’s going to be interesting to see how IBM doubles down on that going forward.
Shelly Kramer: And how the lifespan of those changes, right?
Steven Dickens: Still a massive change for IBM of how they go to market.
Shelly Kramer: Well, I think one of the things that you mentioned in our prior conversation about it was just the customers in that tier two level will have to get used to a different kind of relationship, different kind of treatment, perhaps not quite as high touch, not quite as personal. Sometimes that’s a good thing. Sometimes that’s… I mean, when you’re used to very personalized high touch and you transition away from that, there’s always a danger in that, right? So I think the challenge with IBM there will be how can we transitioned these customers into these tiers, how do we keep these tier two customers happy and feeling like they’re getting what it is they want from IBM, what it is they deserve out of this relationship? So that’ll be interesting.
Steven Dickens: It’s going to be even more interesting as Kyndryl happens in the sort of September, October time. A lot of those big, big multi $100 million dollar relationships are Kyndryl relationships that form part of that $20 billion. So it’s going to be interesting to see how an account that was maybe led by GBS, sorry, GTS, the sort of now Kyndryl business transitions to be in an IBM led relationship as Kyndryl split splits off. So that’s going to be fascinating I think.
Shelly Kramer: Much ahead. That is for sure.
Steven Dickens: Yes, busy year for an off internet.
Shelly Kramer: Absolutely. Well, all right. Now we are going to talk about BMC software and some of their new announcements. I know that the company announced some new capabilities targeted, helping clients, hardened security, modernized app development and also achieve some greater visibility across the IBM Z platform, which I know that you’re very familiar with. And then also focused on promoting an open and collaborative mainframe. So talk to us a little bit. This is about a year past the time that BMC acquired its longtime collaborator Compuware so talk to us a little bit about these announcements coming out of BMC and what you see.
Steven Dickens: I think the most interesting thing, and you just mentioned Compuware, they’re almost exactly to the day a year on from closing that acquisition. I think the interesting thing for me is, and watching the two organizations closely over that interim year, it’s been still BMC and Compuware. They’ve been using both brands. Chris O’Malley the former CEO of Compuware was very vocal for probably the first six or seven months still out there as a cheerleader for his prior organization. I think what was really interesting for me that came out of this was it was very clear that this was the first BMC driven announcement of their new capabilities. And I think it’s going to be interesting to see how they tidy up that branding. Some of the former DevOps tools from Compuware have still got Compuware in the name of the product.
So it’s going to be interesting as they clean that up from a branding point of view but I think what was interesting for me was one of the things that Compuware used to be really vocal about and those in the mainframe space know Chris O’Malley hasn’t got a particular style for being vocal. And one of the things that was really interesting of how they used to position themselves was we’re doing quarterly updates. The mainframe space has obviously been around for decades and they took a strategic opinion that they were going to update their products every quarter. It’s interesting for me to see BMC adopt that same release schedule. So it’s kind of a merging of the best of both worlds from BMC and Compuware which I think is encouraging for the mainframe community, that the good things from Compuware haven’t been dropped as BMC have taken over and it’s really a fusing of the two pieces.
Shelly Kramer: Yeah. That is really interesting. One of the things that I paid particular attention to of course coming out of this announcement is focusing on security, right? And protecting the platform from malicious insider threats. So let’s talk a little bit about why this is so important today. We’ve got the SolarWinds attack that we’re still reeling from and we’ve got the JBS attack, the global meat producer, and we’ve got this week’s REvil attack on Kaseya, an IT management software that’s designed for MSPs and IT teams and why that’s particularly important at least to me anywhere of interest to me anyway, is because when we talk about the SolarWinds attack was and is so relevant because of all of the many government vendors that the SolarWinds software platform served. Right? So the Kaseya, Kaseya, Kaseya, I’m not sure I’m pronouncing that right.
Steven Dickens: Your guess is as good as mine Shelly. I wrote the piece on the REvil attack and I don’t know how it’s pronounced.
Shelly Kramer: I would say Kaseya. So that’s how I’m going to save it, by gosh. So many of customers are companies who are in the small to midsize space who don’t want to mess with or aren’t able to mess with all that’s involved in terms of managing their IT systems and everything else, which is great. That’s the beauty of working with managed service providers, right? They bring the expertise, they bring the IT skill, they bring the capabilities, the infrastructure, all that sort of thing. But when you have an attack on the software provider that provides these services, that is a very big deal. And so anyway, so how does this focus on security from a BMC standpoint? What jumps out at you there? I know that we’ve got some new options within BMC AMI security, how does that work? Why does it matter so much?
Steven Dickens: Well, I think there’s a misnomer that the mainframe. Whatever you say about the mainframe, it’s got a rightfully earned reputation as a very secure platform. But I think it’d be a misnomer that you don’t have to do work to backup that reputation. Whilst it’s, and I know the security professionals say it’s the most securable platform rather than the most secure platform, and then make that distinction because you still do have to do work. And I think even though the mainframe is typically buried behind DMZs and kept on purpose as a system of record away from public facing internet, you’ve still got to secure it. And I think what was interesting for me about the BMC piece was that they were making that distinction and specifically going after one threat vector for me, which is that insider threat. These are highly credentialed individuals that got in a lot of cases, quite elevated access rights to do big actions on the mainframe and if that’s a system of record, a database team or a system administration team can really have access to the crown jewels of information.
That’s typically what a mainframe has running on it. It will be the system of record for a bank or an insurance company or a large government department with a lot of PII data typically on it. So I think focusing on those highly credentialed, super users, further locking down and providing monitoring software of what those users are doing and looking for nefarious actions is really important to know. I was really interested to see BMC kind of play into the noise that’s going on in the industry around the cyber security space. But I mean, that was an obvious ploy, but I think what was more interesting is they’re not just going after the marketing headlines, they’ve really gone and done the product development work to further add capability to what’s a very mature space, but add further capability into that space because it’s needed.
And I thought that was really encouraging. I mean, there’s a lot of detail in the piece and we’ll put the link to my coverage in the show notes, but I think it was really interesting to see they’ve gone and done that hard out and R&D and engineering work and the development work to further bolster those CIS admin type tools. So now it was really sort of interesting for them to go below the marketing hype and really talk about some of the hard development work they’ve done in that space.
Shelly Kramer: Smart and strategic. That’s kind of what I thought when I read it.
Steven Dickens: Yeah. Definitely.
Shelly Kramer: So I want to wrap up our conversation about BMC’s announcements with… When I touch on the open mainframe, I know that’s one of your passions.
Steven Dickens: Subject to my heart.
Shelly Kramer: Absolutely. So talk a little bit about that, if you would.
Steven Dickens: It’s a really interesting dynamic the world that’s going on in the mainframe world right now. Obviously the platform has been around for coming up on 60 years. It’s been probably the poster child in its early few decades for proprietary closed source, very big vendors providing software for that space, right? But over the last five or six years, the platform has gone through a real transformation, embracing open sources as a way to crowd source code and the open mainframe project, which is a Linux foundation collaborative project is kind of really leading that charge. And it’s interesting for me to see BMC announcing with so much pride their membership of the open mainframe project because I think there’s a relatively small number of vendors in the mainframe space and I think it’s really directionally important that that space gets more collaborative, that some of the competitive pieces where there’s not need for competition really become a collaborative effort.
And I know one of the big areas there is Zowe. So BMC has been on the fringes of looking at this space for the last three or four years. It’s really encouraging for that space overall to see what is now that sort of third biggest software vendor jump in with both feet into that open source community and really start to push forward because if the mainframe is going to be around for the next 60 years, it needs to be an open platform and it needs to embrace open source. It can’t be like it was in the last 60 years. So I think that is directionally important for where that platform goes. And as it continues to be that system of record for thousands of large organizations around the world, open is going to be a key phrase in that space.
Shelly Kramer: I knew that was part of that news that would make you very happy.
Steven Dickens: Definitely.
Shelly Kramer: Absolutely.
Steven Dickens: Hold on projects still dear to my heart Shelly.
Shelly Kramer: Absolutely. And OMAP will be.
Steven Dickens: Yes, I’m still the host of their podcast show, so.
Shelly Kramer: And you know what? We’ll put the link to that show in our show notes as well. So if that, like Steven, that is your passion, you will be able to track what he’s doing there in that space. So that’s awesome. Well, all right. We started our conversation today talking about IBM, we’re going to end our conversation talking about IBM. And I saw the news of IBM’s acquisition of BoxBoat Technologies. And I know that this is connected to all things Kyndryl. And so talk with us a little bit about that, Steven. I know you’ve got an article in development, a research note in development on that. So let’s hear a little bit what you’re thinking in terms of IBM strategy here and what’s going on.
Steven Dickens: Well, I think what’s interesting here is IBM’s put the press release out today. Whilst it’s not interesting in of itself that IBM acquires a 47 person services company, I think what is interesting is if you piece together some of the other news, they’ve made a couple of similar acquisitions of this type of scale to bolster out this services business within what will be left as IBM. So IBM services business today is split into GTS and GBS. The GTS business is going to form Kyndryl. So I think what IBM is doing here is positioning itself for post that divestiture. And it’s going to be really interesting to see what IBM services looks like once the big part of IBM services goes over to Kyndryl. And I think what’s going to be left and where can be strategically focused on and this is what I put in my research note is they’re going to be strategically and purposefully focused in on the hybrid cloud space, particularly from a technology stack around Kubernetes and containerization.
And I think the BoxBoat acquisition gives you an indication of what the focus area is going to be for IBM services post the Kyndryl moves. So whilst it’s not significant in size or scale, it’s directionally important. And this is what I covered in the note. I think it’s directionally important because it gives you a hint of what IBM services is going to look like maybe September, October time. So I think that’s, if you piece together the sort of noises that IBM’s making, they’re going to be a very focused services organization on hybrid cloud transformation and specifically containers and Kubernetes going forward.
Shelly Kramer: Yeah, absolutely. And I think that we see this across the board, really from all of our clients in this space. The technology is an important part of the equation, whatever technology it is they’re buying, but that services part of the equation is equally as important and it’s also where a lot of the revenue comes from.
Steven Dickens: Yeah. In the IBM press release, they defined that part of the market purely from a services point of view. It’s a $200 billion market they’re going to go after. So I think there’s some hint. You have to kind of read between the lines in the press release and be very close to IBM to see direct. There’s a lot they’re not saying in the press release that if you’re close to them. And that’s what we’re here for to provide the analysis and just not report the news. You can see the direction where IBM’s heading and start to get some early headlights.
Shelly Kramer: Yeah, absolutely. It makes perfect sense.
Steven Dickens: Definitely. They’ve got a bridge between open shift and some of the product pieces to be in the strategy and advisor and implementation job and some of their clients make this transformation to hybrid cloud.
Shelly Kramer: Right. That makes perfect sense to me.
Steven, thanks for hanging out with me today. This has been a fascinating conversation walking through IBM’s leadership changes, some of the reorganization that’s happening there, the BoxBoat acquisition as well as what’s going on at BMC and what’s ahead and always a pleasure. And thank you so much. And we’ll be back to our listening audience. Thank you for hanging out with us and we’ll be back again soon with more tech coverage and analysis.