AMZN) have been the way to go. The best example of this is the recent CIA contract, which IBM lost to Amazon, and whose award was recently upheld, as our Andrea Tse reported. . Instead of trying to make its existing systems compatible with cloud, the spooks are building their own dirt-cheap cloud and, from a software standpoint, starting from scratch. That could, over the longer run, offer IBM opportunities, because Amazon's cloud is just infrastructure. It doesn't have the software tools of a platform, and tools have to be used in order to build applications, which are the real aim of any computing system.
But serving that market will require more investment, and more acquisitions. IBM must either build Amazon-compatible tools or buy some. Should Rometty have anticipated this possibility and planned accordingly? Yes. But IBM is not the only big company that has been blindsided by the appetite for cheap public cloud over expensive hybrids. And there is evidence that hybrids are starting to gain traction. It's right there in the earnings statement. Cloud revenue is up more than 70% year to date. Even mainframe sales are up 6%, and the services backlog is up 2%. The big shortfall is in "systems and technology" -- the old enterprise business -- down 17%. So what's killing IBM is an accelerating product transition toward the public cloud, and it may indeed be ready to make big money on the hybrid systems that will follow from this. But try explaining long-term technology trends in a short-term investment world. The seat Virginia Rometty is sitting on is about to get very hot. At the time of publication, the author was long IBM Follow @DanaBlankenhorn This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.