The Six Five In the Booth at AWS re:Invent 2022. Patrick Moorhead and Daniel Newman sit down with Roger Premo, IBM’s GM, Strategy & Corporate Development. Their discussion covers:
- The inception of the IBM – AWS partnership
- The progression of the alliance
- Priorities and synergies for IBM & AWS
The one-page illustration of IBM’s strategy can be found on page five of IBM’s 3Q 2022 Earnings
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Patrick Moorhead: Hi, this is Pat Moorhead and we are live here in Las Vegas at AWS Reinvent 2022 inside the IBM Suite. Daniel, another re:Invent awesome event and we are here talking about the maturation of the cloud. We’re talking about partnerships. We’re seeing enterprise software going to the public cloud. We’re seeing public cloud capabilities coming to the enterprise. This is a maturation of the cloud, and I always like to say the cloud is still a 15-year-old teenager, still growing pain, still a lot of things to work through, but better than crawling on all fours.
Daniel Newman: Yeah, it’s good to be here. There’s some overarching themes that you get every year. Reinvent is always an energy. It always sets the tone for the cloud and what’s going on in the enterprise and how they’re adopting technology to drive their business, and of course, themes, hybrid themes, multi themes, AI. Those are the things I’m seeing and feeling everywhere with a little underpinning of sustainability still in there, shifting a little because of the economy, but overall, really exciting stuff as always.
Patrick Moorhead: Yeah, but what’s even more exciting is our guest here, Roger Premo of IBM. Roger, how are you?
Roger Premo: I’m doing well. I’m enjoying the show already too.
Patrick Moorhead: Good. I’d love to see the progress that’s happening with AWS. I think the last time we met was at IBM Think, and you got Dan and I at a conference room and we didn’t know what we were going to talk about, but it was really important and it was all about the new relationship that you had formed with AWS, and that’s pretty cool.
Roger Premo: It is. I’ll say that one was on our relationship with AWS in software and our software portfolio, just to say we’ve been on a multi-year journey of building the partnership with AWS. We are in our consulting business. That partnership continues to grow rapidly, our software business, and then we can talk about even in our systems business, we partner with AWS. Every part of IBM is collaborating with AWS for the joint benefit of our end customers.
Daniel Newman: Maybe start there because you started alluding to it. IBM has had a huge shift in the past year, couple years, since Arvind took charge. Definitely has a story to tell. The market is appreciating it. Getting into a deeper partnership like you mentioned within AWS feels like a pivot, felt like a pivot, starting to feel now like it made a lot of sense and it’s starting to really work, but talk about how the whole partnership began and how it’s evolving.
Roger Premo: If I could back it up for 30 seconds, I’d start with just our strategy. We are on year four of new IBM. We started it with the acquisition of Red Hat and it was based exactly on what you said, which is the world is, call it hybrid, call it melty, it’s heterogeneous. My technology needs to run where it needs to run. That bet was on open source. To your point, bring the cloud back to wherever it is, is that open source will be where that cloud innovation occurs, and businesses that bet their digital innovation agenda on that tailwind of open source are going to be rewarded because they’ll have continuous innovation improving their overall business. That strategy pivot and then all of our portfolio, if it’s hybrid skills and consulting, moving our software to deliver it as a service, both in a traditional model but on AWS, on our cloud, et cetera, if it’s collaboration with our systems portfolio, we’ve pivoted all of our company to that.
Roger Premo: Then if you get to AWS in terms of why that partnership underneath it, when we look at a hybrid architecture premise on open source and delivering that for our clients on their digital innovation agenda, we’ve done the work to show the proof points that that is more economic for them. They drive a better commercial outcome. When our clients benefit and create value, we do better by sharing that value with our customers, our partners, and with IBM. If you look at how we create if it’s our consulting business, we help clients modernize and build applications on top of AWS. Obviously, that’s a great business for both AWS and IBM. If we do it on top of a hybrid cloud infrastructure that is in those other locations that they run their heterogeneous computing, that’s right on the sweet spot of our strategy and it delivers on top of the Red Hat services that exist inside of AWS.
Roger Premo: If it’s in our software portfolio, it is those bigger value propositions. If it’s security, data and AI, process automation, sustainability on top of AWS, again, you’re getting to a better value proposition for our end customer. We’re doing it because it creates value. Then last thing I’d say is, internally and externally, we talk to clients about our strategy. We have a one pager on our strategy. If you look at that picture, I know picture’s worth a thousand words, and we’re using words, but we put our ecosystem and it takes up as much real estate on the page as the IBM portfolio does because we just recognize our clients make decisions on technology. If we rule out a customer because they’ve made one choice in their technology, we’re just shrinking our addressable market. We have to partner across all of our portfolio to get where we want to be as a company.
Patrick Moorhead: By the way, I do want to see that one pager.
Roger Premo: You got it.
Patrick Moorhead: For a brief stint, I ran some elements of corporate strategy for a company and-
Roger Premo: I remember. Yeah.
Patrick Moorhead: I came for more of it from a… It’s funny. I was a product guy who came into the corporate piece, so I looked at it a little differently, but what I always like to do, I would stand back and I would say, “Does my strategy that I’ve put together communicate very clearly as much of what we’re going to do and what we’re not going to do, and what are the prior priorities?” That way, people can budget against it. There’s a cut line. With respect to that, how do you prioritize what you do with AWS? Because your businesses are both so gigantic. It’s consulting, it’s apps, it’s infrastructure, it’s industry, it’s just everything. Where do you start?
Roger Premo: Well, I’d start with a customer. I think Amazon in general has taught us this start with a customer long ago, and I think it’s part of what has powered them to be such an important part of our everyday lives well beyond AWS. Our customers are telling us what they want. Literally, just this morning, customer meetings that are immediately going back to product teams to shape roadmap maps because it’s an emerging need they have, but then within that, I would say across that strategy, we know where we differentiate and we create value for our clients. My team leads a lot of this for IBM.
Roger Premo: We look at how do we allocate capital in places where we can differentiate so it’s a better value proposition for our customers. To your point, we try and be very clear about where that is and where it isn’t so that we don’t put money into places that, at the end of the day, isn’t going to drive a differentiated outcome for our customers. Yeah, it’s all about smart portfolio management. Within the context of the AWS partnership, it becomes pretty easy because a lot of those places, like you said, we were in them. Now, it’s doing them with what is often the cloud of choice for our end customers.
Daniel Newman: Yeah. Providing that level of flexibility is going to be super important. We talked backstage as a group, we’re talking about the heterogeneity of most architectures and ecosystems. It’s huge. I like what you said about the TAM because the bottom line is if you start saying we want it all, you end up cutting that TAM just exponentially in orders of magnitude each time that you say, “We’re not going to play here because they’re on this cloud,” or “We’re not going to play here because they’re using this particular server or x86 versus ARM.” You’re seeing this happen in real time. Roger, how do you go forward? What is the IBM-AWS partnership going to look like over the next couple years? What insights can you glean?
Roger Premo: Well, first of all, I think we started with a little bit of the software announcements earlier this year. I think you’re going to see more of our portfolio delivers as a service just seamlessly integrated into AWS so that if a client wants to buy it from the marketplace, if they want to buy it through whatever partner that they typically work with at AWS, the IBM software is there. You’re going to see we are on a steady stream of GAs of products quarter after quarter after quarter, so you’re going to see more and more of that. I think you’re going to see… We talked about Red Hat. We already have Red Hat, both Linux and OpenShift, as native services within AWs.
Roger Premo: I think you’re going to see that be just more seamless, more easy for customers, and more ubiquitous as they recognize that open source layer that they can run in AWS but also in their data center or another cloud is the way to simplify a lot of that complexity and not carry for that complexity when they add that more, like you said, x86, ARM, other server types that heterogeneity doesn’t multiply compliance, cost, developer skills, all those things that come with heterogeneity. You’re just going to see us… I lead M&A for IBM. You see us continue to acquire skills and new capabilities around AWS, so whether it’s a geography where we don’t have those skills.
Roger Premo: We acquire Dialexa this year, which is in the product engineering space, which is about new digital applications, both what you’d expect on AWS but it may be in new environments at the edge. You can seamlessly see that grow. You saw us, I think, publish a lot of patterns of even the IBM mainframe and how there are patterns of modernizing that to take advantage of the resilience and performance of that platform, but take some of that data or the applications around it and execute them on the AWS cloud, so I think you’re going to see just more momentum at every part of IBM’s business, both deepening the quality of the partnership, but expanding the number of places that we do it.
Patrick Moorhead: Roger, this has been a great follow-up discussion from the announcement at IBM. Think it’s been great, but I want to give you the chance. Any final comments, anything we should have asked you that we didn’t ask you or you want to communicate to the audience?
Roger Premo: Well, you kind of hinted at it. I think that the notion of IBM partnering with AWS or this strategic pivot that we’ve been on for four years, I think the fact that it’s working and our business is growing, thriving as a very different IBM, I think for folks that haven’t taken a look at IBM and the IBM-AWS partnership, I think it’s worth taking what you thought of five or 10 years ago and taking a fresh look. I think you guys have been really helpful in judging us for what we are now, not what we’ve been in the past. I think there’s a lot of folks around the world that you guys are a voice to help them just take that fresh look together because I think you see it with clear eyes. I just hope more and more customers and partners around the world do the same.
Patrick Moorhead: Well, I appreciate… We like to do victory laps as analysts when we get it right, and then when we don’t get it right, we don’t talk about that. I want to thank you for making us look good, but listen, we saw the strategy, and I’ve been in and around IBM for 32 years now, and it is the most different I have ever seen it. Maybe there was one inflection point prior to that inside of IBM that that looked as big, but the strategy’s working. There are a lot of doubters. Wall Street, I never view as the ultimate arbiters of value, but it is nice that you’re hitting all time highs and you’re getting rewarded for some of the work that you’ve done.
Patrick Moorhead: Announcements are one thing and actually delivering the goods at the end of the day, making clients happy, and giving them what they’re looking for without being so protective, which anybody who’s a leader in this industry sometimes has this just knee-jerk reaction to go in and they want to give a big bear hug and have everything, but listen, look at hybrid cloud. There were deniers of that 10 years ago, and now, there’s even some people saying the multi-cloud doesn’t exist, but it’s like, “No, it does.” Every Fortune 2000 has multiple clouds and I’m not counting SAS so that’s a reality. Pulling this together has been fun to watch too.
Roger Premo: Yeah. The Wall Street is not… We want to see our customers IBM business perform, but it will say being the top performing big tech in the S&P 500 this year doesn’t hurt either, so it’s-
Patrick Moorhead: They’re geniuses now.
Roger Premo: It’s pretty exciting to watch that play out.
Daniel Newman: Over the long haul, if you do things right, deliver to the customers, grow the revenue, deliver the profitability, Wall Street does tend to be a good arbiter. For short periods of time, crazy economic swings, it can be totally mental. Roger, thank you so much for joining us here on the Six Five in the IBM Suite at AWS Reinvent in the Booth. I had to figure that out because it’s in the suite, in the booth. Roger, let’s have you back really soon.
Roger Premo: Happy to.
Daniel Newman: All right. Everybody, tune into these other episodes that we did here with IBM at AWS Reinvent. We appreciate you. Hit that subscribe button. Hope to have you back soon, but for now, for Patrick, for myself, for Roger, we’ll see you all later.