Palmisano Outlines IT’s Big On Demand Picture

Take the late 1990-bubble years out of the IT industry and what remains is a steady progression upward in its growth curve, which today represents a $1.3 trillion industry, IBM’s chief executive said Wednesday.

“The IT industry continues to be a growth industry because it is solving important problems” across every sector of the economy, said Sam Palmisano during IBM’s annual springtime meeting with analysts.

More than half of last year’s annual growth in the United State’s gross domestic product alone could be attributed to productivity gains that, fundamentally, are driven by technology, he said.

Palmisano’s comments at the meeting, held in Boston this year, in part represented an opportunity to remind the IT industry, in the midst of what Palmisano himself calls the worst technology recession since the Great Depression, that growth is still taking place. It’s just shifting to new utility-like computing models, or delivering computing services and capacity on demand, he said.

He steered clear of any pronouncements about spending outlooks or financial expectations, other than to say customers sense the economic picture and the IT spending environment have stabilized. Beyond that, he stuck to big picture trends that help explain IBM’s on-demand strategy.

Remember that technology’s terra firma shifts every 15-20 years, he said. In this example, the industry saw the dawn of the mainframe era over 40 years ago, followed by the client-server era that ushered in an explosion of individual productivity with desktop computers. Now, the current shift is toward maximizing networking computing resources in order to improve productivity across the enterprise as a whole.

Customers understand the shift from client-server architecture to a distributed computing model delivered on-demand, he said. “They get it. They get it. They’re not buying replacements on the desktop. The investment driving their business are models to help drive productivity” across the enterprise.

“That’s what on demand is all about,” Palmisano continued. “It’s not just a slogan.”

It’s about horizontal integration of what are now vertical silos, and essentially laying them on their sides in order to interlink applications across a supply chain, internally and externally.

This is why customers and clients are moving to adopt open standards that enable the integration of applications across different platforms, he said. They’re doing it not because “some management guru told them to,” but because it makes sense economically.

When CEOs talk about adopting the Linux open-source operating system to run their applications, “they understand how the world has changed in the past couple of years” in a trend toward linking productivity technology and standards. “In their mind they see this as inseparable.”

Given that backdrop, the question is what will ignite growth in the $1.3 trillion dollar industry, which will be less focused on one or two core technologies, he continued.

“This industry has had a history of driving growth through gizmos, product centered gizmo growth,” he said. No more.

“There’s not going to be one technology, one pure play for the venture guys of the world to sink their money into,” like they could in the late 1990s tech bubble, he said.

Instead, the spending is moving into value-added services, within a range of products, and for a range of knowledge of how to deploy integrated applications.

“People who spend money don’t want to buy five different pieces and parts to assemble.”

The ability to interlink with multiple organizations, internally and externally, “has to be standards based. You can’t do this any other way,” he said.

The positioning for on-demand computing services, utility-style, also reflects the IT industry’s profit margin shift to higher-value, value-added technology such as software and services as components of enterprise computing, as chips, hardware, desktop computers, and increasingly, even operating systems, become commodity items.