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You Want IBM's Cloud? You'll Have to Pay for Watson First

Stocks in this article: IBM HPQ

NEW YORK (TheStreet) -- While much of the cloud computing pack was in Atlanta this week at the OpenStack Summit, emphasizing cloud computing standards, IBM (IBM) was selling itself as beyond the cloud mainstream, based on proprietary software.

CEO Virginia Rometty is timing her push to an IBM 360's purchase by a fictional ad agency in the series Mad Men, selling IBM as uniquely capable of coming up with solutions to cloud-sized problems.

Like every other large computing vendor IBM is pitching cloud but IBM's pitch is tied to its Watson software, which combines cloud capabilities with natural language processing.

This week the company doubled down on Watson with Elastic Storage, a patented system for moving stored data between on-demand flash memory and disks, based on the software.

The question is how much of IBM's proprietary advantage is real, and how much is a sales pitch?

In the series, Sterling Cooper Partners buys its IBM 360 because clients expect it to have one. It can do what it needs done with time sharing, but the appearance of having its own mainframe is seen as necessary by executives who don't know how one works.

Similarly, this week's announcements are also about proprietary advantage, a pitch aimed at C-level executives and consumers, bypassing the professionals who for years were gatekeepers of information budgets.

In the near term, the pitch is working with Wall Street. Shares rose $2.49 on Monday, to $192.57, and are now up 2.67% for the year. For all of 2013 the stock was down 4.5%.

IBM shares would also seem to have room to run in the present market environment. It paid a dividend of $1.10/share on May 7, up from 95 cents/share in February, yet it still sports a below market price-earnings (P-E) multiple of 13.14, putting it on safe buyers' buy lists.

Like rival Meg Whitman of Hewlett-Packard (HPQ), Rometty says her company is "poised for growth" but based on Watson's promise rather than the mainstream of cloud.

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