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

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.

For some tech analysts, the problem with IBM's strategy is that, like the lead character in Mad Men, Don Draper, Watson may also have feet of clay.

It's a proprietary, virtualized server cluster that lacks true cognitive ability, as several scientists noted last month at an MIT Symposium.

What it needs are developers who can turn its capabilities into answers for real world problems.

IBM has put $1 billion at risk in pitching the product, which is named for the family which led it for over 50 years, and in finding those developers.

CEO Rometty is leading the charge with aphorisms that could have come out of a Katherine Hepburn movie like "don't let others define you" and "growth and comfort do not coexist."

Watson is not the only approach to cognitive computing in the cloud. Mathematician/entrepreneur Stephen Wolfram insists his approach is better. IBM has acknowledged the challenges in programming Watson for real-world applications in academic papers.

Many cloud developers insist their systems can do everything Watson can do, and Hewlett-Packard has issued what it calls "15 reasons" its own software can outperform Watson.

With cloud costs constantly falling, however, the best way to keep growth going may be to focus on the weakness of standard cloud software, and to emphasize proprietary advantage. That's the real bet IBM is making with Watson.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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