About a month ago, several articles appeared in the press covering IBM’s willingness to share source code with officials from China’s Ministry of Industry and Information Technology. At the time, the preponderance of firms in the U.S. tech industry and some public officials were taking the stance that such sharing could lead only to theft of intellectual property and a disadvantaged U.S. position. In this view, they were not entirely wrong.
The political backdrop for this moment was tarred with U.S. accusations of electronic spying by Chinese hackers — either officially or officially sanctioned — and with a dim view taken by Chinese authorities of U.S. spying against China as revealed by ex-NSA employee Edward Snowden. The shenanigans on both sides were doing nothing to build international trust between the two countries.
In such an atmosphere, IBM’s move to be open with China struck a discordant note among many on this side of the Pacific, where the fear that China will surpass the United States economically, technologically, and ultimately militarily is already palpable. Particularly in the software field, where a single golden string of bits — ones and zeros in a particular order — however long, can be copied with perfect fidelity and transferred in its entirety to another party, this fear is quite real and justified.
Microsoft has been fighting piracy of its Windows operating system and Office productivity suite in China for decades, suffering in some years a estimated diminution of its business by one-third. So, what is IBM up to being so apparently cavalier about its software?
To assess this situation, it is necessary to understand something about IBM’s position in the chip industry. A year ago, the company divested its silicon manufacturing, although it still retains intensive semiconductor R&D. It has also left the x86 commodity server business, which was based on Intel chips, generated low margins, and competed in a slowing market. Aside from the z architecture that IBM uses in mainframes, what’s left is Power, the architecture underlying the Power Systems business. Power servers scale from small to large, but it could be argued that Power’s sales volumes don’t justify a go-it-alone approach to development. The continued investment in unique silicon is just too great over the long term. So, IBM created OpenPOWER to license the architecture to any company interested in making Power chips, systems, or related components. Several Chinese firms, including Tyan, ZTE, Inspur, Zoomnet, and others took IBM up on the offer. Bottom line is that IBM is promoting a much more open approach than arch-competitor Intel, a position good for both IBM and the industry, which has shown a tendency to gravitate toward open choices.
Looking across IBM one sees the result of many similar decisions, in which the company has chosen to work with partners and open standards rather than going it alone, the way Intel does. Its embrace of Linux, Hadoop, OpenStack, and other standards indicates that the company is ready to compete on the quality and completeness of its solution rather than some proprietary advantage, which might be fleeting.
Thus, IBM has good reason to assuage the fears of its Chinese customers, who represent an important portion of the company’s business and need to be reassured that the firm is not creating back doors in its software that would let any government or other actor peek into the inner workings of Chinese technology and the Chinese economy.
Lest the reader think that in being so open IBM is naively giving the store away to a potentially malevolent entity, it should be clarified that Chinese customers are getting to look at the software in limited and controlled circumstances.
In response to an inquiry on the subject, the company issued this statement:
“IBM has established in several countries – including the United States – the capability to host limited demonstrations so governments and clients can be comfortable that no other entities can gain access to IBM technology, or the data we manage on behalf of clients.
These facilities allow us to reassure clients, including government users, that IBM does not and will not build “back doors” into its technology. The limited inspection of a portion of our software is done in controlled environments, and with rigorous security procedures in place, to ensure that no software code is ever copied, altered or released.”
So, buyers have the ability to look around and kick some tires, but they don’t get to run off with the bits.
Plenty of IP
That having been said, IBM has amassed such a huge portfolio of technology, it is unlikely that even a Chinese company’s having all the bits from an important piece of software would benefit it sufficiently to tip the balance away from IBM in the areas that it cares about: cloud services, big data analytics, mobile device and data management, and security.
Chinese government policy is a worry for all Western companies (and many Chinese ones as well). That being said, IBM has a stronger, better established position in China than many U.S. companies, and a number of Chinese companies are active participants in the OpenPOWER Foundation.
IBM is subject to the same forces as other tech companies, but it comes to the table with a distinct set of challenges and opportunities. In general, IT will increasingly be consumed as a service. IBM has assets in both the old and new regimes. Its old ones are under pressure, but its new ones are right in the curl of the wave. The company has reinvented itself before and may well succeed at doing it again. In contrast, EMC, which is weighted more heavily toward last-generation businesses, was clearly driven by the very same forces to seek an acquirer.