hindsight
Can we all move on from the social media bubble and get back to real work now ?
I heard an IBM guy give a talk at a research conference recently, about a 1U rack system that processes 8 live feeds of traffic, automatically classifies vehicle color and type, and optionally registration, so you can ask queries like "show me all red sedan cars traveling north on monday the 8th". It was part of their better cities initiative.
I can just imagine less scrupulous investors saying, "Hey, look! That thing you're doing? It fits in my overly-broad buzzword category! Give me money for my Social Media fund!"
The first part is pretty on the spot, but the second part is stupid, wasteful and does not belong on HN since Social Media is productive (Facebook allowed me to get back in touch with some old friends that I haven't heard from in years). You don't have to turn out forks or dig iron from the ground just to be productive.
I think the point that the parent was trying to make was that it was useful (and still is) up to a point where we actually got the benefits from it (like in the example you mentioned), but people seem to be realizing that the rest of the "features" of social networks are simply ways to extract more metadata out of a person.
There are some really novel applications that have been born from the social networking movement, but this seems to be a minority compared to the endless amount of trash that is coming out in parallel.
Those things will become more expensive to maintain through time.
The recent IBM offerings are all based on Open Source being re-packaged:
- IBM packaged Hadoop
- WebSphere Community Edition is based on Tomcat
- IBM HTTP Server is based on Apache
By utilizing open source being pre-packaged and charging for support, they basically can get rid of expensive Software R&D and at the same time probably make an in-road to SMB: use the software that you've been using but with IBM support behind it! (discussion regarding the quality of IBM support is left for other time but let me say this straight up: Microsoft software support has been far more superior in terms of speed and the quality of the response than IBM lately).
Having said that, IBM is also becoming some sort of SaaS for government agencies. In some places in North America, IBM machines are printing the local ID card (and probably Driver's Licenses as well). So when a resident lose their local ID card, they'll have to pay the Government certain amount of money and IBM takes a percentage of that.
Maybe Buffett and his co. saw a big picture of IBM strategy to become more aggressive in that market (SaaS for big enterprises) seeing that Big Data is all the rage these days. That's a bigger lock-out that nobody can escape for years and still charging money without having to upgrade or add more features to compel people to upgrade.
First, does it pay a dividend? Yep, IBM does.
Second, is it integrated into the overall economy? I think of it as if imagining what would happen if the company just up and vanished over night. So railroads, power companies, this would result in a lot of other companies would have big problems.
Then of course there are all the other details like the companies finances, executives, and so on that you hear about over and over again in any literature about Berkshire Hathaway.
Consumer oriented companies dominate the news and books because all the inner workings are like a soap opera to the public. But, you can learn just as much from all of these other companies. Most certainly it hones your research skills since the details aren't being delivered to you on a silver platter.
Mine probably too detail and too narrow and may not paint IBM as a whole.
Someone at IBM must have changed his mind?
"We will solve your problems for piles and piles of money. Usually not problems that require technical breakthroughs or research level computer science knowledge, but ill-defined problems that involve many stakeholders, much politics, and complex business logic."
They make their money as a professional services company (a model Buffett has no trouble understanding) that uses technology.
That, at least, would be my take on it.
They're not just a plain boring services company.
I'm sure that quite a lot of research went into Watson, and I think IBM is betting big on that technology. Potential applications are in healthcare (to quickly find an answer in all medical knowledge), legal documents analysis, and so on.
Because of the herd mentality around investing who invests in you does matter, but not for this discussion.
Not a MSFT fan myself but I have to regard Buffett's frienship with Gates as a pretty strong endorsement of him as a businessman.
I would have assumed it had more to do with endorsing him as a philanthropist...
I think, even if you include dividends, any money in MSFT has been completely stagnant for 10 years (and may have actually lost value). IBM stock paid dividends and nearly doubled in the same time period.
No experienced investor bases stock purchasing decisions off P/E ratio alone or even primarily, because the metric has absolutely no intrinsic meaning.
[1] http://www.youtube.com/watch?feature=player_embedded&v=r...
I have been so impressed by the way they deal with small businesses, always looking to form mutually beneficial partnerships to fill in gaps in their service offering, giving small companies access to huge markets they would normally have no chance of entering.
Really excited about their future, think the best is yet to come.
