Could Kyndryl, IBM’s infrastructure services unit spun off as a separate company, be a pathway for IBM to resolve its challenges? I blogged recently about IBM’s quarter and its challenging choice for a cloud strategy. Kyndryl seems to be taking on a broader role; their NYSE listing speech said “We design, build, manage and modernize the mission-critical technology systems that the world depends on every day. As a focused, independent company, we’re building on our foundation of excellence by creating systems in new ways.” That sounds way more like a broad systems integrator mission. Would it help IBM face it’s cloud challenge, and might it even indicate how other companies will face similar challenges down the road?
Back in the proverbial Good Old Days, companies installed their big computers in a data center and ran their applications there. The cloud came along as the end game in a virtualization trend, a trend that aimed at making applications and their components easily movable to any of many suitable hosts, a “resource pool”. That can have a major impact on QoE and resource efficiency, but there’s no question that it adds significantly to complexity.
A “data center” isn’t just a couple big computers any more. It’s multiple locations, a combination of real hosts and as-a-service features acquired from outside, a set of network resources, a bunch of tools and middleware, and a whole set of application design practices. What the users want, which is their base of applications, is spread out all over the place, connected via their network and the Internet. Users often can’t figure out how to put all the stuff together, and vendors can easily find themselves in a never-ending buyer education task before the prospect can even lay out an RFP, and then not win the darn thing when it’s awarded.
A “network” isn’t just a bunch of trunks and nodes, either. It’s devices, clusters of devices, edge and cloud computing, function-hosting standards, management automation standards, and a whole new set of principles, sometimes several different ones in the same network. Users aren’t any better at putting this new network together than they are the new data center, and vendors in the network space face the same problems as IBM and other compute vendors.
For a company like IBM, this issue has two dimensions. First, any sale is likely to become education-dependent, particularly given that IBM’s greatest strength is account presence and control at major enterprises. Who better to tap for knowledge than someone in the building? Second, the expanding scope of technology means that new stuff is likely to intersect the boundaries of things already deployed and fully depreciated, and to involve technologies that no one vendor really offers.
Managed network services from Managed Service Providers (MSPs) is a proof point of this on the network side, and the success of cloud computing proves it on the hosting side. But most enterprises still need to build stuff; as-a-service isn’t always available, suitable, or economically attractive. That’s why an integrator may be an essential element in the future—for IBM specifically, but for tech in general as well.
Integrators are top-down players, often in one or several specific industry verticals because the level of skill and scope of business knowledge needed may be hard to acquire across the whole market. They could bridge the gap between the user who lacks the skills required to plan and deploy something, and the vendors who can’t get involved in the education process. An integrator subsidiary is one option, but that doesn’t cover the problem of the outside technology that might be needed, and it also has the risk of encouraging buyers to ask for integration services for free, given that they’re buying the gear.
Most vendors have channel programs that include support for integrators, and there are some very large integrators out there already; the top ten revenues range into the billions of dollars. These giants aren’t even candidates for most smaller projects and smaller buyers, but again vendor channel programs will include integrators of all sizes. Integrators are already a big chunk of the revenue stream for most network and IT vendors, and their experience shows strengths and limitations of the integrator concept. The strengths relate to specialized skills, broader product base, and explicit costs. The limitations relate to lack of credibility, sticker shock on pricing, and channel conflicts. Can Kyndryl get those in balance?
Kyndryl is going to inherit a lot of IBM’s credibility with major accounts; in many cases, those enterprises will already have contacts in the new organization. IBM had strong strategic influence with these companies, and it’s likely Kyndryl will inherit at least a lot of that, too. Obviously, the new organization will have an impressive skill set, including a good amount of vertical market expertise, cloud expertise, and that “mission-critical” application expertise.
The downside is the dance that Kyndryl will surely have to do, with prospects, prospective suppliers, and even Wall Street. For prospects and other suppliers, you have the “independent-in-name-only” issue. Can an organization once part of IBM be truly independent? Will they still favor IBM products and services? Will they feed back information through personal relationships they have with former IBM colleagues?
For Wall Street, the obvious elephant in the room is why Kyndryl will earn more as an independent integrator than it did as part of IBM. The stock closed off for the week it was first listed, though not (quite) at its low. The CEO comment that “Now we have complete freedom of action” doesn’t prove that they know the best actions to take, or are able to take them.
One very specific question Kyndryl will have to face to establish its value to IBM, directly or indirectly, is Red Hat. IBM’s biggest problem has been its shrinking total addressable market, a result of dropping out of much of the computer hardware space and having no credible presence anywhere except major enterprises. Red Hat not only established IBM as a strategic player again, it’s been largely responsible for its gains since the deal closed. Red Hat has a pretty nice hybrid cloud and “integration” story, though they use the term more at the software-connection level than at the technology services level. Does Kyndryl know anything about Red Hat stuff at all? If not, then it can’t resolve IBM’s downmarket problem. That means its stuck in the same IBM enterprise base that wasn’t enough for IBM’s success, and that drove IBM to acquire Red Hat.
IBM says that “Kyndryl has a robust portfolio of multicloud services available for Red Hat OpenShift….”, and the reference I cite here lists examples. From this you could see that Kyndryl will include Red Hat software in its inventory of technologies, but there’s still a question of the prospect base. Kyndryl’s inherited IBM base wouldn’t include anywhere near all the prospects for OpenShift. Will Red Hat salespeople push Kyndryl integration? If not, who reaches those non-IBM-centric prospects?
For all the challenges, Kyndryl may be a good move for IBM, and a signal that other vendors in both IT and networking are going to have to address integration more thoughtfully. Every vendor faces the education barrier to technology adoption, and most have established perhaps-somewhat-casual integrator programs, as part of their channel sales strategy. Every vendor doesn’t have their own integration activity to spin out, as IBM did, but every vendor will need to ask whether they should be lumping integration programs with overall channel sales. The risk of integrators doing their own educational selling, to be trumped by simple discount channel sales from others when the education is done, is simply too great.
The best solution may be a better-organized channel program, something that network and sometimes-server vendor Cisco launched last year. Channel programs can go a long way toward reducing channel-conflict risks for integrators, and coupling channel programs more tightly to the vendor can not only give the vendor more ability to police channel behavior, it can add to channel credibility by letting the vendor backstop the solutions offered, making smaller and more specialized integrators more credible.
It’s hard for me not to see the Kyndryl spin-out as an attempt by IBM to use “independent” integration services to unify their story with Red Hat and take it down-market. If that’s all there is, then Kyndryl could be a lot worse than a strong integrator channel program. If it’s not, then IBM and Kyndryl need to frame the relationship they really intend, and prove its value to everybody.