Is IBM Cool Again?

By Markets Fool.com

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Just a few years ago, International Business Machines (NYSE: IBM) was viewed as a tech dinosaur, a stodgy legacy tech company struggling to remain relevant. IBM's integrated model of selling hardware, software, and services, which was very successful for the company last decade, didn't translate well to a world where computing resources are rented by the hour. The cloud computing revolution was led not by IBM, but by companies such as Amazon.com and salesforce.com. The old adage "Nobody ever got fired for buying IBM" became comically outdated.

IBM has been working feverishly over the past few years under CEO Virginia Rometty to transform itself into an IT giant that can thrive in this new tech world. Legacy businesses have been sold off or de-emphasized, with resources and manpower shifted to growth areas that will form the core of the new IBM. Billions of dollars have been spent on acquisitions, cloud platforms have been built out, and technologies such as Watson, IBM's cognitive computing system, have been backed by major investments.

Some still view IBM as an irrelevant tech has-been, but it's clear that the IBM of today is very different from the IBM of the past. IBM's cloud business has exploded, with cloud delivered as a service reaching an annual run rate of $7.5 billion in the latest quarter, up 66% year over year. The company is leading the way in a number of areas, including blockchain, which has the potential to upend various industries. And a day hardly goes by without the announcement of a new partnership or initiative involving Watson.

There's no doubt that IBM still has a perception problem, but one recent deal involving Watson and a high-profile tech start-up leads me to believe that the company's image is truly on the mend.

Watson comes to Slack

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In late October, amid a flurry Watson-related announcements, IBM announced that it had partnered with enterprise messaging start-up Slack to bring Watson to Slack's platform. Slack's popularity has exploded in recent years, with the platform sporting 3 million daily active users as of May 2016 and adding users at a rate of 1 million every five months.

Bots are one feature of Slack's platform, and the first step of the partnership will see Watson used to power an improved version of Slackbot, Slack's customer-service bot. Eventually, developers will be able to use various Watson services when building bots and other tools for the platform. Since Watson is a machine learning system, it has the capability to become more accurate and useful over time.

In terms of revenue, this partnership with Slack is likely to be a drop in the bucket for IBM. But it's notable because it's an example of a tech start-up choosing IBM for -- well, anything. My guess is that IBM rarely comes up in the conversation at small tech companies like Slack. That was certainly true a few years ago, and it's probably still true today. That Slack turned to IBM is a fairly significant development, and it could spur more deals and further expand Watson's presence.

IBM is still a company focused mainly on large enterprises, and that's not going to change. But the Slack partnership demonstrates that IBM has made progress rehabilitating its image. I'm not sure that I'm quite ready to say that IBM is "cool" again, but it's certainly moving in the right direction.

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Timothy Green owns shares of IBM. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.