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IBM Years Ago Famously Switched Focus to AI, So What Happened?

• By David Ramel
• 05/01/2023

The AI buzz these days is all around Microsoft, OpenAI, Google and a few other heavy hitters, but not so much for IBM which years ago went "all in" on hybrid cloud and AI. So what happened?

It was October 2020 when IBM famously announced its focus shift, splitting into two companies, one concentrating on hybrid cloud computing/artificial intelligence and one on managed infrastructure services.

"Going all in on our open hybrid cloud platform and AI solutions will create value for our clients, our company and our shareholders," said CEO Arvind Krishna at the time. "This change best positions IBM for improved growth."

So where is IBM's ChatGPT or GPT-4 or other mind-bending AI breakthrough some two and a half years later?

If any company was positioned to take the lead in the AI-dominated tech space, it would have seemed to be IBM. Its Deep Blue system brought early AI tech to the world stage in 1997 when, running on a bespoke chess-playing supercomputer, it became the first machine system to best a world chess champion, Garry Kasparov. Some 14 years later the company wowed the world by defeating humans at the TV game show "Jeopardy!" with early-stage AI tech called Watson. Deep Blue and Watson sparked the public's imagination and became common terms even beyond tech culture.

So why aren't we talking about IBM's large language models (LLMs) and generative AI now instead of Microsoft and its partner, OpenAI? Or Google? Or Stability AI?

Well, we are, just not to the same degree. Forbes reported in February that IBM demonstrated groundbreaking AI research using foundational models and generative AI.

And Watson is still around making news.

In 2022 research firm Gartner placed IBM in the "Leaders" section of its Magic Quadrant report on Cloud AI Developer Services, along with Microsoft, Google and Amazon Web Services (AWS).

But that was before OpenAI's sentient-sounding chatbot, ChatGPT, changed the world forever in November 2022 by kicking off the current deluge of breathtaking, milestone AI advances that keep tech pros and business leaders up at night.

There isn't nearly as much buzz about IBM AI these days compared with the other major players, and financial specialist Seeking Alpha last month documented the company's struggles -- through a quarterly earnings lens -- in the article, "IBM Is Pitching The AI Story, Again."

The article, analyzing IBM's Q1 2023 earnings call, paints a pretty bleak picture of the company's AI endeavors, featuring these takeaways:

• IBM's management expresses confidence in AI for business, but the company's ability to capitalize on AI remains uncertain due to intense competition and unpredictable technological advancements.
• While IBM touts successful collaborations with major companies, the long-term success of these partnerships and their impact on clients' financial performance remains to be seen.
• IBM's difficult history with AI, particularly in the healthcare sector, raises doubts about its capacity to effectively benefit from AI technology.

The article relates the company's "difficult history with AI" and even casts doubt on some claims made by IBM execs.

"According to IBM's management, their use of advanced AI techniques, such as foundation models, large language models, and generative AI, allows them to create 100 AI models from a single dataset," the article said. "While management claimed this approach has reportedly led to a 70 percent faster time to value in early cloud engagements, it's worth noting that these successful cases may not be representative of the typical customer experiences and that we have not come across an independent study to back up these claims."

The wonky article also discusses company valuation, earnings per share and more financial considerations that back Seeking Alpha's skepticism on IBM's ability to benefit significantly from AI.

"While IBM's management appears optimistic about the company's AI strategy, we believe it is essential to approach these prospects with caution," the article said in conclusion. "IBM's track record in AI, especially in healthcare, coupled with the competitive landscape and uncertain technological advancements, cast doubt on its ability to capitalize on AI effectively."

For its part, IBM is steaming full ahead in the AI waters.

"Our solid fourth-quarter performance capped a year in which we grew revenue above our mid-single digit model. Clients in all geographies increasingly embraced our hybrid cloud and AI solutions as technology remains a differentiating force in today's business environment," said Arvind Krishna, IBM chairman and CEO, in a news release about Q4 2022 earnings results.

And Forbes noted: "OpenAI and Google are not the only companies doing extensive AI research. IBM has one of the largest and most well-funded research AI programs in the world. Decades of work with artificial intelligence has kept the company at the forefront of advanced AI research."

The Forbes article discusses the AI cloud-based supercomputer named Vela, which IBM introduced in February. "It has been online since May of 2022, housed within IBM Cloud, and is currently just for use by the IBM Research community," IBM said. "The choices we've made with this design give us the flexibility to scale up at will and readily deploy similar infrastructure into any IBM Cloud data center across the globe. Vela is now our go-to environment for IBM Researchers creating our most advanced AI capabilities, including our work on foundation models and is where we collaborate with partners to train models of many kinds."

Also another financial specialist, The Motley Fool, had a much different take than Seeking Alpha on the question of "Is IBM a Good AI Stock to Buy Right Now?" That April 28 article has these takeaways:

• Big Blue worked in the field of artificial intelligence for decades, capturing headlines in the 1990s and 2010s in classic human-vs.-machine contests such as chess.
• IBM is focused on developing AI for business use, helping companies adopt automation to boost productivity and reduce costs.
• The company's AI efforts helped it experience year-over-year increases in first-quarter revenue and profit margin.

So the question of how IBM ultimately fares in the AI race remains to be seen. Perhaps "Big Blue" views that race as a marathon rather than a sprint. So, while Microsoft and OpenAI might lead the pack now, they might not break the tape.

For examples of how things can change, this reporter remembers using something called Mosaic, the first popular web browser, and something called Alta Vista from a company called Digital Equipment Company (DEC) for searching that web. Those two products absolutely owned their respective browsing and search niches, but where are they now?

So stay tuned to find out where IBM ends up in AI.