IBM has strengthened this critical business.

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International business machines‘ (NYSE: IBM) The strategy centers around hybrid cloud computing and artificial intelligence (AI). In the cloud computing market, IBM’s to find Red Hat forms the foundation of a hybrid cloud platform. IBM’s hybrid cloud platform provides the way forward for large companies and organizations looking to modernize their infrastructure and applications to save money, remove legacy technology burdens, or deploy new technologies like AI.

IBM’s strategy in AI is similar. Last year, the company launched the Watsonx AI platform, which provides a platform for enterprise customers to develop, train, deploy and manage AI models and agents. Since that work, IBM has invested nearly $3 billion in AI-related business and is now adding more than $1 billion in new business each quarter.

While these software platforms are central to IBM’s overall strategy, it is ultimately the consulting business that is doing most of the work. Large organizations need not only software but also guidance, solutions, implementation and other services as they go through complex and extended modernization efforts. A company with on-premise servers running legacy applications needs a lot of help to transition to a hybrid cloud architecture and deploy new AI workloads.

Remember that $3 billion AI-related business? About 80% of the total were advisory subscriptions, the rest from software. IBM’s consulting business is a key differentiator for the company as it goes after the hybrid cloud computing and enterprise AI markets.

An important aspect of IBM’s consulting business is that it is free to build solutions for clients that involve products and services outside of IBM. Through several partnerships, IBM’s consulting arm builds solutions that include competing cloud platforms. Amazon (NASDAQ:AWZN) Web Services (AWS) and Microsoft (NASDAQ:MSFT) Azure, and competing software from similar companies Oracle. This agnosticism is one of the reasons for IBM’s consulting business.

On Thursday, IBM announced plans to acquire Applications Software Technology, a global consultancy for Oracle. IBM competes with Oracle in several areas, but the company recognizes that armies of potential customers now use Oracle software. By serving customers and their Oracle-related needs, IBM can bring in new customers and sell them additional products and services down the road.

Because much of Oracle software is mission-critical, a customer in a modernization effort can stick with Oracle software. With this acquisition, IBM expands its ability to serve those customers.

IBM’s growing set of strategic partnerships, like the Oracle partnership, is Bringing in billions of dollars in business IBM will not win otherwise. In the cloud computing market, these partnerships are especially important. While IBM has its own public cloud platform, potential customers want to use AWS, Azure, or some combination of the two. By building solutions that customers want or need, technology opens the door to more businesses than IBM can win.

As IBM stock trades near all-time highs, the company is doing well by paying off its platform and advisory strategies. The company expects to generate more than $12 billion in free cash flow this year, and that number is likely to grow further in the coming years. Based on that forecast, IBM stock trades for about 17 times free cash flow.

This acquisition of Oracle Consulting may not be a major development, but it is another step forward in the company’s consulting strategy. As enterprises race to modernize, IBM is increasing its appeal as a partner of choice.

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Timothy Green He has jobs in international business machines. Motley Fool has positions and advises global trading machines and Oracle. The Motley Fool has Disclosure Policy.

IBM has strengthened this critical business. Originally published by The Motley Fool.