For those not following IBM, this is rare. The company has posted declining sales for 30 of the last 34 quarters, and over the last decade its slice of the enterprise computing business has been gobbled up by the likes of Amazon, Google, and Microsoft.

Forget what you’ve seen in IBM’s TV ads and marketing materials. This uptick in revenue wasn’t due to the awakening of a sentient Watson artificial intelligence, but instead the company doubling down on what it’s always done: enterprise computing.

If this is a turning point for IBM, it can be traced to the $34 billion acquisition of Red Hat in 2019. Red Hat makes a free, open source operating system, and then charges businesses to install, maintain, and build custom applications on top of it.

With the acquisition, IBM now effectively owns the operating systems of companies worldwide, giving it an opportunity to pitch them the idea of a “hybrid cloud.” Here’s a simplified example: A company has Red Hat’s operating system running on its retail registers, and those devices on the “edge” also run the same core software as in IBM’s cloud. It’s hybrid because immediate local sales insights are available on cash registers, while heavy analysis and database work is done on the cloud. The benefit is a distribution of workload between systems the company already owns and the cloud it pays continuously to use, and that IT administrators can manage it as one single system.

There’s more: Since Red Hat software can also run on competitors’ clouds like Amazon Web Services or Microsoft Azure. So even if a Red Hat customer defected to an IBM cloud rival, IBM still collects some money.

Red Hat was a bright spot in this quarter’s earnings. Its revenue grew 17% year over year, and helped IBM’s cloud and data platforms unit grow 29%.

Analyst Kurt Marko noted during Red Hat’s developer conference in May that the latest version of Red Hat’s operating system specifically focuses on adding features for retail, hospitality, and industrial customers. This lets big companies use the same enterprise tools, like for security and automation of tasks, in both data centers and cash registers. It’s boring, but critical.

This kind of strategy is a growth opportunity that IBM has been missing for years. The company’s problem isn’t a lack of customers, as it is embedded in most of the world’s large enterprises. For instance, it claims to handle 87% of the world’s credit card transactions on its mainframes. Mainframes make IBM dependable money, but those sales don’t grow at the pace of AWS or Azure.

Now with Red Hat and the hybrid cloud, the company can show investors it has some real growth. And if that doesn’t work out, well, the company can always hope that its Watson AI gets better⁠—fast.

Dave Gershgorn 
@DaveGershgorn

NEWSWORTHY

Jeff Bezos reaches the edge of space. The first human spaceflight for Blue Origin carried its founder, Jeff Bezos, and his brother Mark, into the fringes of space, along with karmic counterweights Oliver Daemen, a Dutch teen, and Wally Funk, an 82-year-old aviator. Back on Earth, Bezos' legacy at Amazon is as brutal as ever. A report from Vice today describes a 23-year-old Amazon employee who miscarried a pregnancy after being denied lighter lifting duties at a California warehouse.

Does your phone have spyware? Human rights nonprofit Amnesty International has released a tool to check whether phones have been infected with NSO Group's Pegasus spyware, which was found on the phones of journalists, politicians, business leaders, and activists in a sweeping investigative report by The Washington Post and 16 other media organizations. NSO Group denies wrongdoing, as it licenses out the software to governments and washes its hands of liability, but digital forensic analysis of 37 smartphones confirmed the use of its spy software.

TikTok cuts out marketing agencies. TikTok has launched Spark Ads, a way for companies to sponsor existing content with the creator's approval. If I made a TikTok about how much I love Coca-Cola, the company could sponsor my video, turning it into an ad with links to the product and extending its reach. The new ad format could be a blow to marketing agencies, which are effectively bypassed as brands turn consumers directly into advertisements.

Uber expands its grocery biz. More than 400 new cities and towns will have access to Uber's grocery delivery service, including major markets like New York, San Francisco, and Washington D.C. The move is possible due to a partnership with Albertsons, a grocery conglomerate that owns chains like Safeway, which brings 1,200 stores into Uber's network.

FOOD FOR THOUGHT

How NSO Group beat Apple. Forensic investigators found the NSO Group's Pegasus spyware in the phones of activists, journalists, and politicians, besting Apple's lauded security protocols, The Washington Post reports. The spyware was able to sneak past Apple's defenses due to flaws that security researchers have warned about for years, according to the report, specifically that iMessages from unknown numbers are automatically received and previewed. For instance, when you send a link, the recipient's iPhone reaches out to that link destination to grab an image and any metadata. It's a perfect way to attack the phone.

Here's more from the report:

The infiltration of Mangin’s iPhones underscores hard lessons about privacy in the age of smartphones: Nothing held on any device is entirely safe. Spending more for a premium smartphone does not change that fact, especially if some nation’s intelligence or law enforcement agencies want to break in. NSO reported last month that it has 60 government customers in 40 countries, meaning some nations have more than one agency with a contract.

New security measures often exact costs to consumers in terms of ease of use, speed of apps and battery life, prompting internal struggles in many technology companies over whether such performance trade-offs are worth the improved resistance to hacking that such measures provide.

IN CASE YOU MISSED IT

Volkswagen EV sales badly trail Tesla in the prized China market, alarming analysts by Christiaan Hetzner

Bitcoin at $22,000? Bearish calls intensify as the crypto sell-off intensifies by Sophie Mellor

Everything to know about Tuesday’s Blue Origin space launch with Jeff Bezos by Kevin T. Dugan

Here’s what the Delta variant has done to the stock market so far by Lee Clifford and Nicolas Rapp

The West doesn’t need Chinese tech to fight climate change by Denis Payre

Some of these stories require a subscription to access. Thank you for supporting our journalism.

BEFORE YOU GO

Another secret surveillance test. In 2016, Toronto's Pearson International Airport furtively scanned the faces of 2.9 million people in an attempt to match them against a database of 5,000 suspected identity fraudsters, according to an investigation from The Global and Mail. The test generated 47 "real hits," but its unclear whether anyone was removed or deported due to the scan. The airport didn't put up any signs or public-facing information about the scans.

“I’m very concerned that the government chose to do this,” said Tamir Israel, a lawyer at the University of Ottawa’s Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic who has studied border agencies’ use of facial recognition.

“This was deployed in a context where there was no public discussion in advance, with a technology that’s known to have flaws in terms of both accuracy and, in particular, racial biases,” he said. “In such a high-stakes environment, that’s really concerning.”