In the summer of 2012, five American technology companies bid on a project for a demanding new client: the CIA. The spy agency was collecting so much information, its computers couldn’t keep up. To deal with the onslaught of data, the CIA wanted to build its own private cloud computing system—an internal version of the vast fleets of efficient, adaptable servers that run technically complex commercial services such as Netflix. For the agency, the power of the cloud was tantalizing. “It is nearly within our grasp to compute on all human-generated information,” the CIA’s chief technology officer, Ira “Gus” Hunt, told a gathering of industry leaders earlier that year, calling it “high noon in the Information Age.” For the bidders, more was at stake than a piece of the lucrative federal IT market. Whoever won the 10-year, $600 million contract could boast that its technology met the highest standards, with the tightest security, at the most competitive prices, at a time when customers of all kinds were beginning to spend more on data and analytics.
IBM was one of two finalists. The company would have been a logical, even obvious, choice. Big Blue had a decades-long history of contracting with the federal government, and many of the breakthroughs in distributed computing can be traced back to its labs. The cloud was a priority and a point of pride. In 2012, IBM’s new chief executive officer, Virginia Rometty, used her first speech to shareholders to describe big data as a “vast new natural resource” that would fuel the company’s growth for a decade.
On Feb. 14, 2013, the CIA awarded the contract to Amazon.com. The e-commerce company, a pioneer in offering cloud computing services to corporate customers from Nokia to Pfizer, had persuaded the spymasters that its public cloud could be replicated within the CIA’s walls. Amazon had been bleeding IBM for years—its rent-a-server-with-your-credit-card model was a direct threat to IBM’s IT outsourcing business—but this was different. Amazon beat IBM for a plum contract on something like its home turf, and it hadn’t done so simply by undercutting IBM on price. IBM learned that its bid was more than a third cheaper than Amazon’s and officially protested the CIA decision.
It would have been better to walk away. As the Government Accountability Office reviewed the award, documents showed the CIA’s opinion of IBM was tepid at best. The agency had “grave” concerns about the ability of IBM technology to scale up and down in response to usage spikes, and it rated the company’s technical demo as “marginal.” Overall, the CIA concluded, IBM was a high-risk choice. In a court filing, Amazon blasted the elder company as a “late entrant to the cloud computing market” with an “uncompetitive, materially deficient proposal.” A federal judge agreed, ruling in October that with the “overall inferiority of its proposal,” IBM “lacked any chance of winning” the contract. The corporate cliché of the 1970s and ’80s, that no one ever got fired for buying IBM, had never seemed less true. IBM withdrew its challenge.
No single deal encapsulates a 103-year-old company with a market capitalization of $185 billion. But the CIA butt kicking is a microcosm of larger problems IBM is having as it struggles to adapt to the cloud era, in which clients large and small rent technology cheaply over the Internet instead of buying costly fixed arrays. Under Rometty’s leadership, revenue has declined for eight consecutive quarters, a period when most of corporate America has flourished. In January, after a year in which IBM was the only company in the Dow Jones industrial average whose shares lost value, Rometty and her top executives turned down their annual bonuses, worth in her case as much as $8 million.
by Nick Summers, Bloomberg Businessweek | Read more:
Image: 731; Photographs by Nigel Parry/CPI Syndication (Rometty); Mikehaywardcollection/Alamy (Cloud)
IBM was one of two finalists. The company would have been a logical, even obvious, choice. Big Blue had a decades-long history of contracting with the federal government, and many of the breakthroughs in distributed computing can be traced back to its labs. The cloud was a priority and a point of pride. In 2012, IBM’s new chief executive officer, Virginia Rometty, used her first speech to shareholders to describe big data as a “vast new natural resource” that would fuel the company’s growth for a decade.On Feb. 14, 2013, the CIA awarded the contract to Amazon.com. The e-commerce company, a pioneer in offering cloud computing services to corporate customers from Nokia to Pfizer, had persuaded the spymasters that its public cloud could be replicated within the CIA’s walls. Amazon had been bleeding IBM for years—its rent-a-server-with-your-credit-card model was a direct threat to IBM’s IT outsourcing business—but this was different. Amazon beat IBM for a plum contract on something like its home turf, and it hadn’t done so simply by undercutting IBM on price. IBM learned that its bid was more than a third cheaper than Amazon’s and officially protested the CIA decision.
It would have been better to walk away. As the Government Accountability Office reviewed the award, documents showed the CIA’s opinion of IBM was tepid at best. The agency had “grave” concerns about the ability of IBM technology to scale up and down in response to usage spikes, and it rated the company’s technical demo as “marginal.” Overall, the CIA concluded, IBM was a high-risk choice. In a court filing, Amazon blasted the elder company as a “late entrant to the cloud computing market” with an “uncompetitive, materially deficient proposal.” A federal judge agreed, ruling in October that with the “overall inferiority of its proposal,” IBM “lacked any chance of winning” the contract. The corporate cliché of the 1970s and ’80s, that no one ever got fired for buying IBM, had never seemed less true. IBM withdrew its challenge.
No single deal encapsulates a 103-year-old company with a market capitalization of $185 billion. But the CIA butt kicking is a microcosm of larger problems IBM is having as it struggles to adapt to the cloud era, in which clients large and small rent technology cheaply over the Internet instead of buying costly fixed arrays. Under Rometty’s leadership, revenue has declined for eight consecutive quarters, a period when most of corporate America has flourished. In January, after a year in which IBM was the only company in the Dow Jones industrial average whose shares lost value, Rometty and her top executives turned down their annual bonuses, worth in her case as much as $8 million.
by Nick Summers, Bloomberg Businessweek | Read more:
