John C. Dvorak

The services business is the last refuge of the damned. —Anonymous

On April Fools' Day, 1993, the IBM board of directors put Lou Gerstner in charge of the company. Since then, IBM stock has skyrocketed, and Gerstner pocketed millions of dollars as a thank-you. According to IBM watcher Bob Djurdjevic of the Annex Bulletin, IBM's growth rate under Gerstner was the worst in IBM history, at 3.2 percent, compared with the 4.3 percent growth rate under John Akers. In retrospect, Akers was not only the better CEO, but his vision for breaking up IBM was also the right one. Now there's no turning back.

Although Gerstner mavens in the business press praise the great job he has done transforming IBM into a "profitable services titan," a look under the hood isn't so pleasant. Sure, Gerstner pumped IBM stock into the stratosphere. Apparently that's all Wall Street cares about. But according to Djurdjevic, "Gerstner has paid dearly for creating the illusion of prosperity. IBM has spent $44 billion of its shareholders' money on stock buybacks, instead of investing it in the business."

Now let's imagine what would have happened if Akers had his way and chopped the company into pieces. He started his scheme with Lexmark in 1991, a company that is still successful. If he had continued with the slow dissection, he would have walked into the eye of the crazy IPO/Internet storm as it became a hurricane. This would have made shareholders and employees rich beyond their imaginations.

Gerstner then came in with the sentimentalists who like Big Blue and actually began to buy companies in a sellers' market. There was even talk of somehow buying back Lexmark. This kind of thing creates nice numbers that help prop up stock prices. But those acquisitions were laughable and sometimes senseless. IBM bought Lotus (1995) and let it languish. It bought Sequent (1999) and continued to downsize and marginalize the company. There were Tivoli (1996), Unison (1997), Software Artistry (1998), Mylex (1999), and others, until the spree ended with the recent purchase of database vendor Informix for a cool billion, which is ironic, since IBM invented the relational database.

Also during the Gerstner era, we saw the neglect and essential demise of OS/2, followed by the disappearance of the Desktop OS initiative. We recently saw IBM lose its lead in supercomputer technology to the Japanese—after IBM bullied its way into the business. And why didn't the PowerPC architecture do better in the market? There was supposed to be a standard reference platform for this chip. IBM left it to Motorola to continue the struggle.

The old IBM was being shoved aside in favor of a more flamboyant IBM that was hip and into services. Wall Street loved to hear about how IBM was the number-one company in Java development. But what exactly came of that? More recently, IBM jumped on another hot and trendy technology—Linux. IBM thought, "Gee, let's consider Linux on a mainframe." That makes a lot of sense for a company with genuinely powerful operating systems such as VM! Even more weird is Linux on a supercomputer, but up goes the stock anyway. If IBM is so high on Linux, then why doesn't the company port the Lotus software to Linux? Curious, no? Meanwhile, its next iteration will be e-BOD (e-Business On Demand), which amounts to more malarkey—.NET, IBM style.

The company now promotes itself as the happening Internet-savvy company that can do no wrong. It backs this claim with humorous and slick TV ads implying that IBM can fix all your Internet-related problems. It's a services company now, and it better be. In the process, it has essentially discarded its entire networking hardware division. (Imagine the IPO of that puppy during the boom!) IBM is going to be out of the hard drive biz soon, and PCs, too. Some 20,000 people are expected to be laid off in piecemeal fashion, according to most reports.

This isn't your father's IBM. I'll be shocked if there is anything left but a company much like Unisys—a haven for desk jockeys. IBM may even be bought by Unisys or maybe Microsoft. Go read about what happened to Nabisco once Gerstner departed. What's left of it is owned by Kraft Foods, a former competitor.

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