America's No. 1 financial conglomerate

Chapter 296 Google is about to make a big move

Just as the acquisition of Oracle was finalized, a somewhat aged voice suddenly rang out in the office.

"Ernst, do you have any plans to sell your GenTek company?"

Everyone fell silent again, their eyes turning to the source of the voice.

Ernst paused for a moment, then turned his head, his eyes filled with inquiry, and asked with a hint of uncertainty in his tone, "What, is IBM interested?"

Jerome Bailey Yorke, a close friend of Steve Jobs, a member of Apple's board of directors, and also the chairman of Apple's audit committee.

However, he also held several other positions, having served as the CFO of both industry giants IBM and Chrysler.

To be able to hold the position of CFO in these two industry giants, one's background, business capabilities, and industry standing are all formidable.

This seemingly kind-looking old man is a graduate of West Point, the cradle of American military talent. One can only imagine the resources and connections behind someone who comes from there.

After graduation, he also earned an MBA from the University of Michigan and a Master of Science from MIT, making him a true academic superstar and elite.

West Point Military Academy—just from the name, you know what kind of power it represents and what kind of people stand behind it.

Looking at the two companies he previously worked for, IBM had long-standing and substantial trade relations with the military, securing numerous orders for various military computer equipment.

Needless to say, Chrysler is a major supplier of military vehicles for the United States, and many of the military's off-road vehicles and transport vehicles are made by them.

But this old man has already left IBM, so how can he still make decisions for IBM? Could it be the idea of ​​IBM's current president, Lou Gerstner?

But that's not the point. The point is that IBM actually set its sights on GenTek, which was something they hadn't expected.

The more he thought about it, the more confused he became, and hesitantly asked, "Has IBM changed its mind again and no longer wants to pursue the transformation?"

"Transformation?" Jerome paused for a moment upon hearing those two words, a look of confusion in his eyes, as if he had heard something unbelievable. "What kind of transformation are you talking about?"

If it were anyone else, they might have been fooled by Jerome's clueless appearance.

But who is Ernst? He has an unparalleled understanding of the movements of major technology companies. In his eyes, these companies are like naked women, all their ulterior motives and strategic intentions laid bare.

"It's about shifting from a traditional hardware manufacturer to a software service provider," Ernst said casually, as if he were talking about something common knowledge.

The others in the office looked bewildered upon hearing this, exchanging bewildered glances, completely unaware of the cryptic conversation between the two.

Jerome's reaction was completely different. It was as if he'd been struck by lightning; he stared at Ernst in shock, his mouth slightly agape, unable to close for a long time. Finally, he couldn't help but blurt out, "How did you know about this?"

His statement was undoubtedly a tacit admission of Ernst's claim.

This caused an uproar in the office. Everyone looked at Ernst as if he were a monster, filled with disbelief.

"You actually guessed right?" Larry Ellison grabbed his hair, his eyes practically bulging out of their sockets. "How did you know?"

Ernst glanced around, seeing everyone's astonished expressions, and couldn't help but chuckle, saying with a hint of teasing, "Is this so hard to understand? I thought everyone had figured it out."

Then he stopped smiling, his expression turned serious, and he analyzed earnestly, "What caused the crisis IBM faced a few years ago? The root cause is very simple: decision-making errors and serious redundancy in personnel."

The people in the office nodded in agreement, clearly agreeing with his point of view.

IBM has always focused on computer hardware manufacturing, but they produce mainframes that weigh hundreds of kilograms each, and their customers are mainly B2B clients such as banks and government departments, completely ignoring the huge potential market for personal computers.

From the very beginning, they stubbornly believed that individual users simply did not have the ability to buy and use computers, let alone the need for them.

The results of it?

Jobs built a simple computer in his garage, which became an instant hit and ignited a consumer boom in personal computers.

It was only then that IBM woke up to the reality of what a huge market it had missed.

It can only be said that the foundation of large companies is indeed formidable. Even though it lagged behind Apple in the personal computer field, IBM, with its strong technological accumulation and resource integration capabilities, came from behind and quickly captured the market with its first personal computer, even becoming synonymous with personal computers for a time.

But who could have imagined that their subsequent actions would be so baffling? By disregarding the exclusive agreement and allowing Bill Gates' operating system to be licensed everywhere, they resulted in a market flooded with counterfeit devices, ultimately benefiting Microsoft and giving it a monopoly in the operating system market.

As for the issue of redundant personnel, that's even more serious.

IBM was rife with bureaucracy and conservatism; it was a disaster zone. At its peak, the company had over 400,000 employees, but in reality, the work done by these people could have been easily done by 200,000 others, resulting in an absurdly low workload.

The idea that "doing nothing is the best approach, and doing more leads to more mistakes" has become deeply ingrained within the company and is now a shared understanding among everyone.

"George Gerstner can be said to be a gift from God to IBM, who pulled this giant back from the brink of crisis." Ernst couldn't help but remark, his tone full of respect for the current IBM president.

"His sweeping reforms after taking office were truly impressive. He disbanded the inefficient management committee and then drastically streamlined the company, eliminating the complex financial system, 31 internal communication networks, and 128..."

The company had a chief information officer and over 70 Google departments, all reduced to just one.

"I simply cannot understand how a company can have 128 chief information officers and more than 70 GG departments. It's a huge waste of resources," Ernst said, shaking his head helplessly with an incredulous expression on his face.

"However, what I admire most about his reform measures is that he significantly reduced the company's management levels, breaking down the huge and cumbersome IBM into 12 independent groups, forming business groups that operate independently but cooperate with each other."

Google's current management structure is actually modeled after IBM's.

Not only Google, but also other major multinational companies from both China and the West, such as Huawei and Alibaba, have referenced IBM's system when designing their management structures.

Before IBM introduced this management structure, the management structures of major companies around the world were either divided according to products, with one department for each product, resulting in a large number of departments and overlapping and confusing responsibilities.

Alternatively, you could divide the business by region, with one department for each region. However, this approach also leads to problems such as bloated organizational structures and poor communication.

IBM reorganized all departments according to business areas, establishing the Financial Services Group, Insurance Group, and so on.

Semiconductor Business Group, etc.

This organizational structure became common in later generations, but today it was pioneered by IBM and was an absolutely disruptive management innovation.

With this management structure reform and the elimination of redundant personnel, Gerstner saved IBM $3 billion in costs in one year, enabling IBM to return to profitability.

Jerome, however, felt that Ernst still hadn't given him the answer he wanted, and persisted, frowning as he said, "But that doesn't directly prove that IBM is transforming into a software service provider."

Ernst picked up the coffee cup in front of him and gently swirled it, causing tiny ripples to spread across the coffee inside.

He raised his glass, gestured to Jerome, took a sip, and then said slowly, "I am so sure that IBM is transforming, mainly for three reasons."

"Firstly, in the past two years, IBM has acquired two important software companies. Through the acquisition of Lotus Software, IBM successfully acquired Notes, an enterprise market management software that is highly sought after in the enterprise office field and can bring IBM a large number of stable enterprise customers."

"The other company is Tivoli, located in Austin, Texas, which has strong technical capabilities in the field of system management software. IBM is willing to spend a lot of money to acquire these two companies. If they were not interested in the software business, there would be no need for them to do this. This is obviously paving the way for IBM to enter the software market."

"The second point is the establishment of a dedicated software group by IBM. Before that, IBM didn't even have a department specifically responsible for software business operations, let alone a software group. In IBM's view, software business was just an appendage of hardware business and was not valued at all."

"The establishment of an independent software group is enough to show that IBM has elevated its software business to a strategic level. Doesn't this prove its intention to transform?"

"As for the third point, which is also the most crucial one, IBM actually has a unique advantage in the software industry, but it has been overshadowed by the brilliance of its hardware business."

Ernst's tone was filled with a hint of envy: "In the realm of underlying operating systems, Microsoft has built a strong moat with the Windows system, essentially achieving an ecosystem monopoly. It is difficult for other companies to compete with it in this field unless new hardware carriers besides personal computers emerge."

"In the field of high-level application software, companies like CAD and Adobe have already taken a dominant position, with very stable market share and users."

"But in the middleware software field, which few people pay attention to, IBM has already quietly built its own moat. In fact, IBM holds most of the market share in various database software, system management software, transaction management software, and so on."

"After decades of development, with IBM mainframe users all over the world, the volume and scale of its supporting software is even larger than Microsoft's software business. However, under the influence of IBM's traditional hardware mindset, the company's management has never realized the importance of the software business, always believing that all software is just a supporting tool for hardware and there is no need to spend too much energy developing it."

This is what Ernst envied: the accumulated resources of large enterprises are almost like gold falling from the sky, a gift from heaven that grants them business and a monopolistic market position.

"Guusner clearly saw the huge growth potential of the middleware software business, which is why he continuously consolidated IBM's advantage in this field by acquiring middleware software companies, aiming to completely form a monopoly."

Ernst paused, then added, "Don't forget, my company is a long-term IBM client. I know better than anyone how much software management fees we pay to IBM every year. From the growth trend of these fees and the changes in the software services IBM provides, I can clearly feel IBM's investment and ambition in the software business."

A brief silence fell over the conference room as everyone digested Ernst's analysis, the air thick with the scent of contemplation.

After a moment, Jerome was the first to react, and couldn't help but clap his hands, a smile of admiration on his face. "Brilliant! Absolutely brilliant!"

"Actually, IBM didn't deliberately hide any of the information you mentioned; many clues can be found in publicly available materials. But everyone outside, like the IBM management of the past, is bound by fixed mindsets, always believing that IBM should be a hardware company, focusing all their attention on IBM's hardware business, and completely ignoring the changes in the software business."

"Only you have broken free from this mindset and seen the truth behind it." Jerome gave Ernst a deep look and praised him generously, "No wonder you are recognized as a genius in the internet industry. Your sensitivity to industry trends is truly exceptional."

"Honestly, if you set up a fund company that specializes in investing in internet industry stocks, I would absolutely invest all my assets in your company without hesitation."

Ernst was about to thank him for the compliment when Jerome abruptly changed the subject, throwing out a question that caught him completely off guard: "Since you're so accurate in predicting industry trends, then I must ask, is Google also ending the browser wars? Or rather, ending that much-discussed email war?"

"How did you know?" This time it was Ernst's turn to look surprised.

Seeing Ernst's surprised expression, Jerome smiled like a child who had won a game, his face full of pride.

"Don't forget who provides Google's servers. The server order your company recently placed with IBM was ridiculously large; at Google's current rate of business growth, it simply doesn't need that many servers."

"Google is definitely going to make a big move, and the number of users is expected to surge dramatically in a short period of time, otherwise there would be no need to purchase so many servers."

After listening, Ernst shook his head helplessly and sighed inwardly: Sure enough, no one in the business world is a fool; any slightest clue can be picked up by the opponent.

He didn't deny it, frankly stating, "Competition in the internet industry is inherently a protracted war. The browser war involves too many stakeholders, and it won't end easily; it will continue for some time. However, the email war you mentioned, this farce that has dragged on for so long, is indeed time to come to an end."

The others in the office didn't find anything particularly special about what he said, but Jerome's eyes lit up instantly, as if he had discovered a new continent, a glint of light flashing in them.

Judging from the number of servers Google purchased this time, even if they completely capture the entire market share in the email field, they still won't be able to fill the capacity of these servers.

Jerome's first thought was that Google was definitely planning something even bigger.