The CIO of IBM announced his resignation this week and has moved to Amazon.
To say this is a disaster is an understatement.
IBM System: Hub & Spoke
The Corporate Mothership acts as a hub, with contractors as its spokes, interacting directly with IBM Corporate clients.
Fallout: Contractors’ Wages Cut
Good speculators know to cut their losses when they’re losing.
If you are part of America’s “gilded management class”, you never really lose, and so you keep doubling-down.
In this case, the “doubling-down” is forcing austerity measures on your contractors who, incidentally, are doing the work for you!
The plan, as of now, is to impost a 15% top-line cut on all IBM contractor payments.
Contractors Cannibalized: Already Operating on Thin Margins
By electing to cannibalize its own contractors, IBM has entered a death-spiral with its clients: contractors are now unable to provide the customary service they normally provided to their clients, and as a result, the clients are firing IBM — entirely.
CEO Needs to Go
The CEO needs to go, but even if she is fired, it might not be enough: Amazon and other competitors will continue to poach the best from IBM, and there is another problem…
Cloud/Tech: Market Not Big Enough For All These Players
There simply is not enough demand from the market’s end-users to support 2nd-tier competitors such as IBM.
Broader Implication: Tech Deflation Cometh
This IBM failure is terrible news, because it implies that tens of thousands of tech workers are producing, marketing, or administrating redundant or unnecessary software and services.
If the software and services of IBM aren’t needed, then where do these workers go?
Calling It: Time for a Tech Bear Market
Amazon is almost a $0.5T company. At this point, its stock price is irrelevant, because its cost of capital is basically negative.
Amazon has kicked IBM to the curb and now enjoys a proper monopoly in the cloud.
The market has matured and can now consolidate.
Mr. Market does not need to keep rewarding the tech monopolies with higher market capitalizations, because the Leaders have already Won.
What’s the point in Amazon going any higher? Amazon won!