As the story goes, IBM salespeople in white shirt and blue suites used to serve primarily Fortune 500 companies. But things are different these days. The tech services giant is reaching out for smaller clients in a bid to revive its revenue.
IBM announced on Nov. 10 that it would offer up to $120,000 a year in credits to startups that are willing to use its cloud services, according to the Wall Street Journal. It will also connect these startups with its customers, provide technical support and advise them to go to the market, the Journal said.
IBM traditionally targets large clients, which enables it to have higher profit margins but prevents it from capturing a larger market share. Big clients are more likely to accept higher prices while IBM can spend less money on marketing, advertising and less time on training its clients.
The move was the Armonk, NY-based firm’s latest effort to attract smaller businesses at a time when its executives are under mounting pressures to boost revenue, which had dropped for ten straight quarters. Prior to this, it had offered server services to small and medium-sized companies.
IBM shares edged up 0.9 percent on the same day IBM announced its plan, closing at $163.49 a share. Its stocks have dropped 13 percent so far this year, largely dragged by the selloff ignited by its disappointing earnings in the third quarter.
Apart from boosting cloud services, the world’s largest tech services company does not have much of a choice to improve its revenue, given the decline in most of its segments.
Cloud services sales grew 69 percent in 2013, being IBM’s best performing business. The overall company saw a 4.6 percent decrease in revenue in the year.
However, seeking a foothold in the cloud market when its peers have already dominated the market, IBM has a modest market share in comparison with Amazon and Microsoft.
IBM’s cloud revenue was estimated at $260 million in the second quarter, versus Amazon’s $960 million and Microsoft’s $370 million, according to Synergy Research Group. IBM does not release its revenue in the cloud business, which uses services from its hardware and software segments.
IBM has a large pool of products and services that prove suitable for small and medium businesses, but this market segment is a new arena for the mammoth firm.
“It’s very competitive space,” said Peter Wahlstrom, an analyst at Morningstar Inc. in Chicago. “It will likely take time to play out; you won’t see a quick quarterly rebound or success in any one or two quarters.”
He expected IBM’s revenue to extend its drop, falling another 11 percent in the fourth quarter.