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IBM VS. MICROSOFT VS. NVIDIA AND AI

By Rob Enderle / March 22, 2024


Twenty years ago, NVIDIA and Microsoft were nowhere with AI, while IBM’s Watson
was winning Jeopardy! and later taking on professional debaters. Conventional
knowledge was that IBM was going to own AI, but no one seemed to care since
projections at the time indicated that AI wouldn’t take off until sometime
around 2040, when general-purpose AI was expected to become viable. Microsoft
had a leading AI concept in Cortana but didn’t invest in it any more than Apple
invested in Siri. Eventually, it was quietly phased out.

Then in March of last year, Microsoft announced Copilot and suddenly became the
AI darling. Copilot was a workable AI that started generating revenue almost
immediately. This year, NVIDIA, which had been developing AI quietly for over
two decades, went vertical as the new King of AI, making Microsoft and NVIDIA
two of the top three most valuable tech companies in the world.

What happened? IBM was way out front but is now almost a footnote. Maybe it’s a
mismatch between strategy and leadership.


IBM’S OPPORTUNITY AND PROBLEM

IBM once had the longest-serving CEO in technology. Thomas Watson was CEO for a
whopping 41 years. That consistency in leadership allowed the company to execute
across decades. More recently, IBM leadership has turned over around every
decade. Any effort with a payback out more than a decade (AI was in process
since the early 2000s) just wasn’t going to be a top-level priority for the
company. Why invest the firm’s capital in an effort that you’ll never get credit
for? It shouldn’t be that way, but it is. How much would you invest in a project
that you’ll never get credit for?

So, IBM under-invested in its technology, and now, instead of being ahead of the
curve, it’s starting to look like it is behind (it isn’t, but perceptions are
reality). It’s not because the IBM folks didn’t work hard or that watsonx is a
bad product. It’s because IBM needed to invest at NVIDIA’s level from the start,
but its organizational structure just didn’t allow for that. It should have
either changed its policy with regard to CEO longevity or changed tactics to
something more like what Microsoft has.


HOW MICROSOFT MOVED ON THE OPPORTUNITY

Microsoft has made several tactical moves that benefited it strategically. It
wasn’t the first out with a Windows product (that was Apple). It wasn’t the
first with a major productivity product (that was Lotus). And it wasn’t the
first with browsers (that was Netscape). However, Microsoft developed a process
that allowed it to pivot quickly and take leadership from market founders. That
process also worked with Xbox, though once it realized that the PS2 wasn’t the
threat it thought it would become, it crippled that effort. Otherwise there
likely would be no other gaming platform than Xbox today.

Microsoft failed with Zune, Cortana, and the Windows Phone because it didn’t
follow the process it had for success. With AI, though, Microsoft effectively
replicated what it did with Internet Explorer and bought into the market with
OpenAI and ChatGPT. This allowed it to move around IBM, which was still, at the
time of Co-Pilot’s launch, operating like AI wasn’t going to be a major thing
for decades. Microsoft caught everyone else napping except NVIDIA, which was, as
it turned out, the hardware power behind ChatGPT.


NVIDIA

NVIDIA has the current longest serving CEO at 30 years. Jensen Huang, who admits
what he did was insane, drove his company to create something that conventional
wisdom said was decades away from being a market. As a result, when the market
arrived, NVIDIA was, and is, considered one of the founders.

The reason NVIDIA was able to take the market so decisively was that its effort
was a high priority from day one, while IBM didn’t get the focus it needed in
time. It isn’t too late; with the right marketing, IBM could still get credit
for leading in LLM integrity and security and being first with a viable
solution. Sadly, IBM doesn’t have the marketing organization they once had under
Gerstner, and recreating that, while it should be a high priority now, isn’t
with any tech company I cover, including IBM.


WRAPPING UP: KNOW YOUR LIMITATIONS

For a company with a CEO tenure of 10 years or less, the only viable path is to
be a fast follower, which is what Microsoft did with its incredibly timely pivot
to AI. In fact, given it hit first, this would have been like Microsoft bringing
out Internet Explorer before Netscape was a power, which would have resulted in
Netscape being stillborn. In a way, with Copilot, Satya Nadella out-executed
Bill Gates, and that is an impressive accomplishment. And the concept of a CEO
executing over decades puts Jensen Huang in Thomas Watson’s class in terms of
empire-building, suggesting that NVIDIA’s valuation growth may be just starting.
It wouldn’t surprise me at all to see NVIDIA pass Apple and Microsoft into the
Number One slot, given its deeper AI foundation. I should note that at Huang’s
GTC keynote, it was Apple’s Vision Pro, not a Windows PC, that was positioned as
the best AI client device, suggesting that Apple has a potentially huge
iPhone-like opportunity here.

In one of the Dirty Harry movies, one of Harry’s famous lines is, “You have to
know your limitations.” IBM needs to understand that it can’t execute like
Thomas Watson’s IBM did, but it can emulate what Microsoft did to accomplish the
same result. But that means IBM needs to maintain a small core competence in
future areas and hold back financial reserves so that when it sees a market
about to break, it can buy in and ride the wave instead of building to it like
NVIDIA did. IBM needs to reinvest in marketing so it can at least get the credit
it’s earned correctly.

Long-term, NVIDIA needs to realize that if Huang steps down, its ability to
execute will be crippled, and it will need to shift to a fast-follower model. If
it doesn’t, it’ll find itself in the future where IBM is now. And unless IBM
changes strategies, it’s likely to miss the quantum wave as well, even though;
currently, it’s ahead of everyone else. According to Huang, AI is already doing
many of the things we believed would require quantum computing (except
security), suggesting there is a risk that the eventual quantum computing market
may be far smaller than we’ve anticipated.

By the way, I was once a lead analyst in Market and Business Intelligence in
IBM, and I likely would have reported this same thing internally if I still
worked there. I loved that job.

 * About
 * Latest Posts

Rob Enderle
President and Principal Analyst at Enderle Group
As President and Principal Analyst of the Enderle Group, Rob provides regional
and global companies with guidance in how to create credible dialogue with the
market, target customer needs, create new business opportunities, anticipate
technology changes, select vendors and products, and practice zero dollar
marketing. For over 20 years Rob has worked for and with companies like
Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD,
Intel, Credit Suisse First Boston, ROLM, and Siemens.
Latest posts by Rob Enderle (see all)
 * IBM vs. Microsoft vs. NVIDIA and AI - March 22, 2024
 * IBM Moves into IT Sustainability Services - March 15, 2024
 * HP and NVIDIA: Building the Missing Link in AI Solutions - March 8, 2024


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