The price of a unit of mainframe processing moved from $63,000 that month to less than $2,500 seven years later, an incredible 96-percent decline. Mainframe software price/performance improved, on average, 20 percent a year for each of the next six years.
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We should cut the price of hardware ASAP, simplify software pricing, focus development on
simplification, implement a hard-hitting communication program to reposition the mainframe and workstations, and underscore that the mainframe is an important part of the CIOās information portfolio.
IBM stock had dropped from a high of $43 a share in 1987 to $12 a share the day of the shareholdersā meeting.
On average, our competitors were spending 31 cents to produce $1 of revenue, while we were spending 42 cents for the same endā¦ So we made the decision to launch a massive program of expense reductionā$8.9 billion in total.
Finally he pointed out that the economics of a services business were very different from those of a product-based business. A major services contract might last six to twelve years. An outsourcing contract for, say, seven years might lose money in the first year. All of this was foreign to the traditional world of product sales and would create problems for our sales compensation system and the financial management system.
One example: The segment of IBM that produced applications for distribution and manufacturing customers set a stretch goal to increase sales by $50 million (from a base of about $100 million). It ran ads and promotions and sales contests, and it hit its target. In the process, it alienated every software company in that segment of the market. Those companies, in turn, stopped recommending our hardware and contributed directly to a $1 billion decline in sales in one of our most popular products.