How Does IBM Make Money? IBM Business Model In A Nutshell

IBM started in 1911 as the Computing-Tabulating-Recording Company (CTR), called the International Business Machines by 1924. IBM primarily makes money from three segments: Software, Consulting, and Infrastructure.

IBM history in a nutshell

While in the early 1920s, the company acquired the name that would stick up to these days, IBM operated already by the late 1800s as tabulating equipment for the US census, as reported by computerhistory.org.

Its founder, Herman Hollerith, was an inventor who came up with the tabulating punched-card that enabled automated computations ever since IBM became a major player, they created computers for scientific research and business during the 1960s.

While IBM would play catch up during the PC era, it kept its position as a solid business. In the 1990s, IBM risked being spun off in several units and shut its doors until it got turned around.

As reported by NYTimes in 1995:

The International Business Machines Corporation reported its first profitable year since 1990 yesterday, with fourth-quarter earnings more than tripling to a level well above Wall Street analysts’ estimates.

It is important to highlight those were very competitive years, as the same article from the NY Times reported:

After being roughly tied with Apple Computer Inc. in 1993 for the title of No. 1 seller of personal computers in the United States, I.B.M. slipped in 1994, falling behind the Compaq Computer Corporation, Apple and Packard Bell Inc. to fourth place.

According to the article, the company’s fall was due to a lack of focus, too many unsuccessful models, and a lousy inventory management system. We might argue indeed that it’s not possible for a company to stay on top of its game for so long.

Yet IBM turned around, and it’s still a strong company as of today.

IBM business model in a nutshell

IBM is one of those companies which is interesting to look at, as it managed to survive wave after wave of IT innovation, and yet, as of today, while playing a role in the enterprise space, IBM is still an important tech player (although not many realize that).

How does IBM make money?

Software revenue increased from $23.42 billion in 2021 to $25 billion in 2022, resulting in a 6.73% growth year over year.

Consulting revenue grew from $17.84 billion in 2021 to $19.1 billion in 2022, reflecting a 7.08% growth year over year.

Infrastructure revenue rose from $14.2 billion in 2021 to $15.3 billion in 2022, indicating a 7.75% growth year over year.

Financing revenue declined from $0.774 billion in 2021 to $0.645 billion in 2022, showing a -16.67% decrease year over year.

Other revenue experienced a significant drop from $1.12 billion in 2021 to $0.453 billion in 2022, resulting in a -59.55% decrease year over year.

Cognitive solutions

Cognitive Solutions’ revenue of $18,481 in 2018 provides Solutions Software, led by the company’s analytics and security platforms. Within analytics, the company offers a set of products from the Db2 portfolio, including analytics appliances and IBM Cloud Private for Data.

Other services part of that are integrated security and services solutions, like Watson Health and Watson Media & Weather.

Global business services

Global Business Services revenue of $16,817 in 2018, which comprises consulting, led by key offerings in a digital and cloud application. New consulting offerings comprise the company’s digital strategy, like Digital Commerce and CRM offerings, and accelerated growth in next-generation enterprise applications, led by strong demand for consulting and implementation services.

Technology services & cloud platforms

Technology Services & Cloud Platforms revenue of $34,462 in 2018.

IBM innovations

IBM claims to be the enterprise AI leader. This claim is supported by solutions like IBM Watson, which is a key AI tool used by decision-makers in the business world, which comprises several key use cases:

AI for customer service.
Natural language processing.
Build a chatbot.
Explainable AI.
AI for enterprise search.
And AI for contract governance.

As explained on the IBM Watson website, with the AI assistant, you can do things like:

Build a full-service virtual assistant that responds to customers directly on the front end and provides employees and agents with information and resources they need on the back end. Seamlessly automate tasks – from addressing customer requests to guiding employees through internal processes – to allow your teams to focus on higher value work. This is AI customer service with Watson Assistant.

Or use Natural language processing capabilities to:

Natural language processing (NLP) is the parsing and semantic interpretation of text, which allows systems to learn, analyze, and understand human language. With Watson’s suite of NLP offerings, including Watson Natural Language Understanding (NLU), you can surface concepts, categories, sentiment, and emotion, and apply knowledge of unique entities in your industry to your data, no matter where it lives.

Or how the IBM Blockchain helps enterprise customers to build supply chains.

Key takeaways

Born around the 1920s, IBM was previously called Computing-Tabulating-Recording Company and it came to life thanks to the inventions of its founder, Herman Hollerith, who came up with tabulating machines for the US Census.
Later IBM would be able to revolutionize and dominate the IT space with its family of computers that helped foster scientific research and business.
At the same time, IBM lost traction during the 1990s when the PC industry was getting dominated by other key players.
The company turned around during the late 1990s and it managed to renew its business model.
While IBM still mostly operates in the enterprise space, it managed to innovate in several areas by offering enterprise tools (like IBM Watson and IBM Blockchain) that power up many businesses.