Why Blockchain May Be Key to IBM's Future

While Watson and AI are its most visible new direction, blockchain might be the company's ace in the hole.

Christine Hall

September 7, 2017

5 Min Read
Chairwoman and CEO of IBM Ginni Rometty speaks onstage at the FORTUNE Most Powerful Women Summit in 2013 in Washington, DC.
Chairwoman and CEO of IBM Ginni Rometty speaks onstage at the FORTUNE Most Powerful Women Summit in 2013 in Washington, DC.Paul Morigi/Getty Images for FORTUNE

It's no secret that IBM's revenue has been sliding downward for some time now. Its second-quarter earnings report in July was more of the same -- a 21st consecutive quarter of declining revenue. The issues it faces aren't unique. Its legacy businesses -- hardware, software, and services for traditional corporate data centers -- have been shrinking as customers move to the cloud. Despite its best efforts, its own cloud isn't getting enough traction for it to make much of a dent, either in the market or its bottom line. It's worth remembering, however, that the company has seen much worse and managed to pull itself out.

IBM's biggest turnaround efforts seem to center around Watson and its other implementations of AI and machine learning, and the numbers seem to indicate it's doing well there (although there are rumors that the efforts might not be as fruitful as the figures seem to suggest). Although it occupies a prominent spot in AI -- at least that's the public's perception, thanks to Watson's famous appearance "Jeopardy" -- and the technology is certain to be a large part of IBM's growth if and when the growth comes, it's probably not going to be the company's main mover.

According to Business Insider, the Swiss financial services giant UBS thinks the company should be betting it's future on blockchain. UBS would know about blockchain. It jumped on the distributed-database bandwagon early and has become a major proponent of the technology's use:

Both IBM and Microsoft are looking to monetize blockchain, but we think IBM is ahead and that blockchain is more important for IBM. IBM's legacy businesses are in decline; we think technologies such as blockchain and cognitive computing are its best hope for recovery.

The way I read it, that would be blockchain leading the way but enhanced with AI. If so, I think they make a good point. And because of the nature of both blockchain and AI, that could help give IBM's cloud the push it needs to make it an essential component of its business infrastructure.

For a refresher, a blockchain is a decentralized ledger originally designed for bitcoin as a simple way to keep bitcoin users from scamming the system and spending their cryptocurrency more than once. In business, it can be used to streamline processes while keeping them secure. In supply chains, for example, instead of each business in the chain (manufacturer, shipper, buyer, and the like) all using their own paperwork for tracking and invoicing, the blockchain would allow everyone involved to see each step in an open, secure ledger.

IBM definitely has a lead when it comes to blockchain technology, having been involved in its development almost since the day people first realized that distributed databases might be useful outside the realm of cryptocurriencies. It was also one of the first companies to put the technology into production for it's own purposes, integrating it into its own supply chain.

It also might be uniquely positioned to bring blockchain adoption to financial institutions, which have recognized the technology's benefits but have been cautiously slow to adopt it. The company has worked with the financial sector since the days when computer technology was in its infancy and Big Blue was about the only game in town. That means it's built a lot of trust over the years. It also means it has a deep understanding of the needs and concerns of bankers and others in the financial trades.

"The result is that those banks that are accepting the blockchain cloud platform from IBM are also agreeing to be supported by those employed by IBM," business analyst Helena Leathers recently pointed out on Seeking Alpha. "It could be argued that because of IBM's long length of service, international footing, and range of clients, those who therefore associate with IBM are in a stronger position than those who do not."

That would certainly be Big Blue's claim, I would think.

IBM is starting to see some traction with its blockchain efforts. In June the company announced that it had been selected by a consortium of seven large European banks to build and host Digital Trade Chain, a trade finance platform based on blockchain, designed to simplify and facilitate domestic and cross-border trade for small and medium enterprises.

"To make the Digital Trade Chain network a reality and enable it to serve potentially thousands of the consortium’s banking clients, we turned to IBM in enterprise blockchain to help us quickly bring this highly scalable system into production,” said Rudi Peeters, CIO of the Belgian bank KBC, speaking on behalf of the consortium. "Their blockchain and banking industry expertise will help us create a new platform for small and medium businesses in Europe that can enable them for faster, easier and cheaper trade transactions."

It's also starting to see success outside the realm of finance. A couple of weeks ago the company announced a collaboration with 10 food suppliers, including brands like Nestlé, Tyson Foods, Unilever, Walmart, and Kroger, to track food products from farm to grocery store shelves in the interest of efficiency and food safety.

The medical industry is also taking an interest in blockchain, both for patient privacy issues and as a means to securely transmit medical data, such as the results of CAT scans and MRIs. That would seem to be an area that would be ripe for Big Blue to be a triple threat, bringing secure cloud storage as well as AI and blockchain to the table.

About the Author(s)

Christine Hall

Freelance author

Christine Hall has been a journalist since 1971. In 2001 she began writing a weekly consumer computer column and began covering IT full time in 2002, focusing on Linux and open source software. Since 2010 she's published and edited the website FOSS Force. Follow her on Twitter: @BrideOfLinux.

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