IBM's Decade of Smart: Making Money by Making Sense of Data

Smarter Planet

On Tuesday, IBM CEO and chairman Sam Palmisano unwrapped the second phase of its already-ubiquitious "Smarter Planet" campaign, pronouncing the 2010s "the decade of smart." His premise: this is the decade in which everything will have processors and sensors in it, everything will be connected via the "Internet of Things," and IBM will reap billions by advising governments on how to make sense of the corresponding data glut, courtesy of the analytical engines it's spent tens of billions to acquire or build.

Speaking in London at the Royal Institute of International Affairs, Palmisano reflected on the first year of the campaign, in which IBM signed multi-year, multi-hundred million dollar contracts to manage London's traffic-congestion system, integrate New York's crime-data systems, and reduce Shenyang, China's carbon emissions by 10%, among many others. IBM created 1,200 "smart solutions" for customers in all, he boasted, four times his original target.

IBM's success has sparked a flurry of copycat efforts by rivals like HP, Autodesk, Oracle, and Cisco, filed under the headings of "Digital Cities," "City 2.0," "Intelligent Urbanisation," and even a "Central Nervous System for the Earth." Cisco's audacious efforts to create "Smart+Connected Communities" from scratch across the Middle East, India, and East Asia are the subject of a feature in the February issue of Fast Company (available online next week) which took me to New Songdo, South Korea to witness the birth of a smart city the size of downtown Boston.

Although Palmisano sprinkled a few surprising factoids throughout his remarks (30 percent of the data in the world now consists of medical images; 10,000 security cameras in London are streaming to the Web 24/7), the majority was devoted to the nuts of bolts of leadership:

CEOs, CIOs, governors and mayors are asking:
How do I infuse intelligence into a system for which no one enterprise or agency is responsible?
How do I bring all the necessary constituents together?
How do I make the case for budget?
How do I get a complex solution through my procurement department?
How do I coalesce support with citizens?
Where should I start?"

IBM has devoted considerable time and energy to answering these questions at nearly a hundred Smarter Cities conferences in the past year, attended by more than 2,000 policy wonks and public officials. The reason for this special care and feeding becomes clear once you examine its financial statements.

Public sector sales is the company's fastest-growing segment, even as overall revenue is expected to decline eight percent for the year. (IBM will announce Q4 and annual results next week.) Profits are up due to cost-cutting, but "the company hasn't had a good answer for shareholders worried about revenue," Barron's commented last month in what was otherwise a mash note. "Many investors and rivals believe growth has stalled. IBM is only just above the revenue base it had before dumping key hardware lines." These days, of course, IBM more closely resembles a consultancy (it bought PricewaterhouseCoopers in 2002) than the big iron vendor of old. Nearly 60% of its business comes from services; software is 22 percent and hardware 17%.

IBM hopes to find that growth in the developing world. Barron's noted that, "in 2008, growth markets made up under a fifth of IBM's top line but delivered 50% of its revenue growth. They are expected to kick in 60% of revenue growth over the next five years, meaning the developing world could add $2 billion in revenue a year."

"If you are an emerging country and you are building your infrastructure, there is only a handful of people out there you trust," Sanford Bernstein analyst Toni Sacconaghi told the paper. "No government will be fired for hiring IBM."

But Barron's merely suggests what I (and the analysts I spoke to) concluded: governments are where the money is (specifically, $3 trillion in stimulus spending) and these technology companies may be less worried about saving the world than stimulating the next gusher of IT spending.

In London yesterday, Palmisano professed to see the opposite:

The world economy has stabilized somewhat, although significant challenges remain. Stimulus programs are making an impact, but they cannot and should not last forever. In fact, for the foreseeable future, we will be faced with addressing many pressing global issues with less, rather than more, resources.
Indeed, applying smarter technologies to drive cost out of our legacy systems and institutions—doing more with less—will be critical to our near-term and long-term economic prospects. We will need to extend our infrastructure's useful lifetime, and we will need to ensure that next-generation systems are inherently more efficient, flexible and resilient.
The good news is, it's happening.

[Image: IBM]

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