On October 16, IBM announced another down quarter -- its $18.76 billion in revenue missed expectations by $340 million and was 2% below the year before, according to the company.
Its stock has increased a measly 14.6% since Ginni Rometty became CEO in January 2012 while the S&P 500 rose nearly ten time faster -- up 142%, according to Morningstar.
What is IBM's board doing to earn its pay? Why is IBM losing ground? My answers: IBM's board is certainly not protecting shareholders -- how can it defend IBM's persistently pathetic performance? And Big Blue is losing to focused upstarts who offer companies a better value proposition.
Rometty was upbeat, exulting, "IBM's progress and momentum this year in the emerging, high-value segments of the IT industry are driven by our innovative technology, deep industry expertise and commitment to trust and security," according to IBM.
I have no financial interest in the companies mentioned in this post.
Another private company with a breakthrough product that's challenging IBM in the business of trying to prevent catastrophic computer failure, could fall into Cisco's arms in the next few years -- or get bought up by Big Blue.
Since its CEO has a track record of running and selling companies, this would not surprise me in the least.
That company is San Jose, Calif-based Virtual Instruments, a provider of "application-centric infrastructure performance monitoring" founded in 2008 that has raised $96.5 million.
Virtual Instruments was formed in 2016 when it merged with Load Dynamix, of which Philippe Vincent, was CEO. Vincent -- a native of France with an MS in Mechanical Engineering from Berkeley and a Harvard MBA -- spent 10 years at Accenture where he rose to partner.
In 2007, he started at chief operating officer of Big Fix Software, a provider of intelligent monitoring of devices and infrastructure for security and compliance issues, which IBM bought for $400 million in July 2010.
In 2012, he became CEO of Load DynamiX -- which had raised about $19.3 million to simulate and monitor corporate storage workloads. In April 2016 Load DynamiX merged with Virtual Instruments -- whose product tapped the flow of information through network equipment (such as Fibre Channel and Ethernet).
They merged for two reasons: First, Virtual Instruments had run out of room to grow in its core Fibre Channel market -- which led its investors to turn down another round of investment, according to The Register.
Second, customers were installing products from both companies -- LoadDynamiX used Virtual Instruments' product -- and wanted them to work together. At the time of the merger, Virtual Instruments' VirtualWisdom product analyzed the performance of a company's computing infrastructure, but it was unable to simulate production workloads in its lab -- which was where LoadDynamiX's technology excelled, according to The Register.
Under Vincent's leadership, Virtual Instruments has grown since the merger. In an October 16 interview he said,
We merged to invest in innovation and to reposition around a larger total addressable market. At the time of the merger, we had 140 employees and we now have 210 plus engineering contractors. We spent 2016 and part of 2017 enhancing the product. In the four quarters since we began selling the product, we have grown in the mid-20% growth rate. We went from 0 to 60 in a year and in 2017 had 173% growth rate in new customers. We are planning on $75 million in revenue for 2018. We expect to boost our growth rate to at least 30% in the future.
Vincent sees a $20 billion addressable market for Virtual Instruments. "Gartner says that the performance and availability space will reach $4.8 billion in 2018 growing to $6.13 billion in 2022. When you add infrastructure monitoring to application monitoring -- the business of AppDynamics [which Cisco Systems acquired for $3.7 billion in January 2017 just after it filed for an IPO] -- to workload automation, you get $20 billion," he explained.
Virtual Instruments wins business because it gives companies a single tool built to automate the data center. As Vincent said,
The analogy is to look at the way Google built self-driving cars. Instead of using legacy technologies that solved parts of the problem and trying to make them work together, Google built an integrated system specifically for self-driving cars. We do the same for the data center. VirtualWisdom monitors the entire infrastructure and analyzes and optimizes the performance, utilization and health of IT infrastructure within the context of the applications running on it.
There is evidence that customers prefer VirtualWisdom to similar products from VMWare, CA, and IBM. Gartner Peer Insights found that of 12 verified reviews by customers, VirtualWisdom -- with 4.7/5.0 rating -- came out ahead of Computer Associates (4.0 rating), IBM (4.3 rating), and VMware (4.5 rating).
To accelerate its growth, Virtual Instruments is working on its product and improving the way it markets and sells. "The first version of our app-centric version of VirtualWisdom hit the market in April 2018 and it has been adopted well by big customers. We have to learn how to take it to market. We are learning," he said.
Virtual Instruments has a multi-pronged marketing strategy. "We are holding a three-day bootcamp, so our sales people can understand the value proposition of our new product -- focusing on the gaps in competitors' products and describe how our product closes those gaps. We are partnering with channels and application performance monitoring vendors, VMWare, and change management vendors like ServiceNow," according to Vincent.
Virtual Instruments seems to me be looking for an acquisition partner. As he explained, "We don't know about an IPO. AppDynamics filed for an IPO and Cisco bought it. It's a $20 billion market and Cisco is building a portfolio through acquisition. Splunk could bring our approach to the hybrid cloud. We believe our principles will carry our growth."
Vincent helped to build BigFix which IBM acquired. It looks to me like he could sell Virtual Instruments to Cisco or IBM.
As for IBM shareholders, the solution could be to find another CEO who can build and service products that gain market share against upstarts, so its revenue growth accelerates.
