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.

Elements	Analysis	Implications	Examples
IT Solutions Provider	IBM operates as a global IT solutions provider, offering a wide range of products and services, including hardware, software, cloud computing, artificial intelligence (AI), and consulting services.	Provides comprehensive technology solutions to address complex business challenges. Serves a diverse range of industries and sectors. Leverages innovation to stay competitive and meet evolving market demands.	Clients across industries, such as finance, healthcare, and manufacturing, rely on IBM’s technologies and services to modernize their IT infrastructure, enhance cybersecurity, and implement AI solutions.
Cloud Computing	IBM offers cloud computing services through its IBM Cloud platform, providing infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS) solutions to businesses and organizations.	Enables clients to leverage scalable, secure, and cost-effective cloud resources. Supports digital transformation and innovation. Competes with major cloud providers like AWS, Azure, and Google Cloud.	Businesses and startups use IBM Cloud for hosting applications, data storage, and AI services. IBM Cloud serves as a foundation for building and deploying innovative applications and services across various industries.
Artificial Intelligence	IBM Watson, the company’s AI technology, powers various applications and solutions, including natural language processing, chatbots, and data analytics. IBM offers AI services and tools to help clients harness the power of AI.	Empowers clients to enhance decision-making, automate processes, and gain insights from data. Fosters innovation in industries such as healthcare, finance, and customer service. Competes in the AI and machine learning market.	Healthcare institutions use IBM Watson for medical research and diagnosis, while businesses integrate AI into customer support and data analytics. IBM’s AI solutions contribute to advancements in healthcare and personalized customer experiences.
Consulting Services	IBM Global Business Services provides consulting and advisory services, helping clients with digital transformation, technology adoption, and business strategy. The company assists organizations in optimizing their operations and achieving growth.	Offers clients strategic guidance and expertise in navigating complex business challenges. Builds long-term partnerships and revenue through consulting engagements. Competes with global consulting firms.	Large enterprises and government agencies consult with IBM to develop technology strategies, improve operational efficiency, and implement digital transformation initiatives. IBM’s consulting services span various industries and geographies.
Hardware and Software	IBM manufactures and sells hardware components, including servers, storage devices, and mainframes. The company also develops and licenses software solutions, such as operating systems, database management systems, and enterprise software.	Provides clients with infrastructure solutions and software applications to support their IT needs. Offers a broad portfolio of hardware and software products. Competes in the hardware and software markets.	Banks and financial institutions rely on IBM mainframes for secure transaction processing, while businesses use IBM software like IBM Db2 for database management. IBM’s hardware and software underpin critical IT infrastructure worldwide.
Research and Innovation	IBM invests heavily in research and development, driving innovation in emerging technologies like quantum computing, blockchain, and cybersecurity. The company holds numerous patents and collaborates with academia and industry partners.	Positions IBM as a technology leader and drives competitiveness. Enables the development of groundbreaking solutions and services. Fuels future revenue streams by pioneering emerging technologies.	IBM’s quantum computing advancements have the potential to revolutionize industries like drug discovery and finance. The company’s blockchain solutions enhance supply chain transparency, and its cybersecurity offerings protect critical data and systems.
Global Presence	IBM operates in over 175 countries, serving clients globally through a network of sales offices, data centers, and research labs. The company’s global presence allows it to reach a diverse range of industries and markets.	Provides access to a wide customer base and diverse talent pool. Facilitates international business partnerships and collaborations. Mitigates risks associated with regional economic fluctuations.	IBM’s global presence enables it to serve multinational corporations, government agencies, and organizations across various industries. The company’s international reach fosters innovation and supports clients’ global operations.
Value Proposition	IBM’s value proposition centers on empowering organizations with cutting-edge technology solutions that drive innovation, enhance operational efficiency, and enable digital transformation. IBM offers clients a trusted partner with deep industry expertise and a commitment to solving complex challenges.	Offers clients technology solutions that deliver tangible business value, from cloud computing and AI to cybersecurity and blockchain. Provides industry-specific insights and expertise. Drives innovation and supports clients in achieving their strategic goals.	IBM’s value proposition is exemplified in its work with healthcare providers to improve patient outcomes, partnering with financial institutions to enhance security, and assisting manufacturers in optimizing supply chains through IoT and data analytics.
Customer Segments	IBM serves a broad spectrum of customer segments, including large enterprises, government agencies, small and medium-sized businesses (SMBs), and industries such as finance, healthcare, manufacturing, and retail. IBM tailors its solutions to meet the specific needs of each segment.	Addresses the diverse technology requirements of a wide range of industries and organizations. Builds long-term relationships with clients and supports their growth and transformation journeys. Leverages industry-specific knowledge to deliver tailored solutions.	IBM collaborates with global enterprises to develop AI-powered customer service solutions, supports government agencies in enhancing cybersecurity, and helps SMBs implement cloud-based productivity tools. The company’s industry-specific solutions span finance, healthcare, manufacturing, and retail sectors, among others.
Distribution Strategy	IBM utilizes a multi-faceted distribution strategy, including direct sales, channel partners, cloud services, and a global network of data centers. The company also leverages digital platforms and eCommerce to reach and serve clients effectively.	Ensures a wide reach through direct and indirect sales channels, catering to clients’ preferences. Provides scalable cloud solutions with global data center presence. Utilizes digital platforms for sales, support, and collaboration.	Clients can engage with IBM through direct sales teams, partner networks, or cloud-based services. The company’s global data centers deliver reliable and scalable cloud solutions, while digital platforms facilitate seamless communication and transactions.
Marketing Strategy	IBM’s marketing strategy emphasizes thought leadership, content marketing, and industry-specific solutions. The company positions itself as a trusted advisor and a driver of innovation. IBM leverages digital marketing, events, and partnerships to engage with clients and showcase its expertise.	Establishes IBM as a thought leader and innovator in the technology industry. Provides clients with valuable insights through content marketing and educational resources. Cultivates strategic partnerships and fosters client engagement through events and collaborations.	IBM’s marketing efforts include industry-specific webinars, whitepapers, and events, showcasing its expertise in areas like AI and hybrid cloud. The company collaborates with strategic partners to deliver integrated solutions and promote its offerings to a global audience.
Competitive Advantage	IBM’s competitive advantage lies in its long-standing reputation for innovation, a diverse portfolio of technology solutions, a global presence, deep industry expertise, and a commitment to research and development. IBM’s focus on emerging technologies like quantum computing and AI positions it as a leader in the tech industry.	Offers clients a trusted and experienced partner with a track record of innovation. Provides comprehensive technology solutions, from hardware to software and services. Leverages a global network to support clients worldwide. Drives future competitiveness through research and development investments.	IBM’s strengths include pioneering quantum computing research, securing critical data with cutting-edge cybersecurity solutions, and empowering clients with AI-driven insights. The company’s global reach and industry-specific knowledge enhance its competitive edge in the technology sector.

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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.

Key Highlights from IBM’s History and Business Model:

Early Beginnings: IBM, initially named Computing-Tabulating-Recording Company (CTR), was founded by Herman Hollerith in the late 1800s. It became known as IBM by the 1920s. It started by creating tabulating equipment for the US Census.
Innovations in Computing: IBM played a significant role in the development of computers for scientific research and business during the 1960s. It went on to become a major player in the computing industry.
PC Era Challenges: While IBM faced challenges during the PC era and lost its top position in the personal computer market, it remained a solid business with a focus on innovation and reinvention.
Turnaround and Recovery: IBM turned around its fortunes in the 1990s after facing issues like lack of focus, unsuccessful models, and poor inventory management. The company’s successful recovery was marked by profitable years and renewed business strategies.
Diverse Revenue Streams: IBM’s business model is centered around three main segments: Software, Consulting, and Infrastructure. The company generates revenue by offering software solutions, consulting services, and infrastructure-related products.
Software and Services Growth: IBM’s software revenue has shown consistent growth, including offerings in analytics, security platforms, digital strategy, cloud applications, and AI solutions like IBM Watson.
AI Leadership: IBM positions itself as an enterprise AI leader with its Watson platform. Watson offers various AI capabilities, including natural language processing, chatbots, explainable AI, and AI for customer service.
Blockchain Innovation: IBM has ventured into blockchain technology, providing solutions for enterprises to build efficient supply chains and enhance business processes.
Enterprise Focus: While many associate IBM with the enterprise space, it continues to innovate and provide essential tools and solutions to power businesses across various industries.
Adaptability and Resilience: IBM’s ability to adapt to changing technology landscapes and reinvent itself has been a key factor in its sustained success over the years.