IBM Launches $10B On-Demand Computing Push

What do you do when the going gets tough? If you are IBM, you make “on demand” computing a focus of your strategy. Big Blue CEO Sam Palmisano announced Wednesday a new on-demand initiative at the company, in which IBM will institute more flexible pricing for businesses whose need for computing power fluctuates over time.

The new vision focuses on selling computing power like a utility service. Palmisano told a New York audience of 300 customers and partners that technology strategist Irving Wladawsky-Berger will head the effort.

The IBM chief said he has seen some signs that the economy may have hit bottom, but he added that the tech sector faces unique problems. “Clearly, we are suffering from hypergrowth, overinvestment and expansion of the dot-com bubble,” he noted, pointing out that IBM’s new strategy will serve as a way to deal with the tech downturn.

Betting Billions

To achieve its goals, IBM will spend US$10 billion to overhaul its business model. “Is it a big bet? Yeah, big bet. Bold bet? No doubt about it, it’s a bold bet. Is it a risky bet? I don’t think so. It’s not a risky bet,” Palmisano said.

One analyst at research firm Forrester applauded Palmisano’s announcement in a note published on Forrester’s Web site. “It’s a wise move, but he’ll have plenty of competition along the way from Sun’s N1 and HP’s adaptive infrastructure,” analyst Ted Shadler wrote.

According to Palmisano, customers will realize enormous cost savings, efficiency and competitive advantages as they become on-demand businesses.

“For tech companies, the on-demand era could be as disruptive as the birth of the PC,” IBM said in a statement sent to the E-Commerce Times. “Business and technology consulting will converge as companies seek help in transforming their organizations. Technology sales will be driven by software based on open standards, rather than operating systems tied to a particular hardware platform. Companies will also begin experimenting with the utility model of computing inside and outside their organizations.”

Design Centers Planned

IBM also announced the opening of On-Demand Design Centers around the world to help customers rapidly implement pilot programs using open technologies, including Web services, Linux and grid computing. Big Blue said its business consulting division will provide On-Demand assessments to help companies begin the transformation.

In addition, Palmisano said, IBM will spend at least $700 million on marketing the on-demand initiative over the next year.

IBM already touts on-demand services on its corporate Web site. According to the company, the services make finding e-business solutions as easy as turning on a water faucet or flipping a light switch. But unlike most utility companies, IBM is facing competition for customers: Sun Microsystems and Hewlett-Packard also have instituted pricing based on how much computing power customers actually use.