IBM: Software Powerhouse

15-20 years ago when IBM declared its intentions to become a software powerhouse with 40-50% of revenues to be derived from software sales this IT observer, along with a lot of others, said “I am from Missouri – show me”. And of course, we and the likes of Adobe in graphics, BEA in transaction processing, Google in Search and Web-based apps, Microsoft in PC and Server OS plus apps, Oracle in database and financial apps, SAP in ERP and a host of others – we all had either smirks and/or quizzical looks on our faces as IBM did grow software revenues but certainly not anywhere near the 40-50% target. Literally, IBM was still giving away huge markets to others. For example, all of the above established their market dominance well after IBM dedicated itself to massive software revenues.

How could such an IT savvy company leave so much market share and revenues on the table ? Perhaps it really does take a generation to turn around a hardware and mainframe oriented culture to the soft side. Perhaps IBM needed to take some real marketing lickings from erstwhile partner Microsoft in PCs apps and OS software. Perhaps CEO Gerstner and now Sam Palmisano had the real backup plan – make money in consulting services and use that operation not as an IBM software salesforce (competitors will argue this point vociferously) but more as a usability lab – what works in the field from both IBM and competitors gets used – and detailed reports on how and why get back to IBM management.

Whatever the reasons, IBM has transformed itself into a software powerhouse. We have already seen that in a number of ways small and large. The database division, legacy of Janet Pernas leadership, is now delivering not just a everywhere including mobile database but a DB2 database that has double the TPC benchmarks at a 40% discount and a broader feature set than its nearest competitor – Oracle. The Tivoli division has wrested a major market posiion in system operations and management. And dare we say it – Lotus with Notes and its range of Collaboration software have staved off decimation by Redmond and may have a signficant legup in the open standards based, Web 2 direction which that market is taking. So wonders of wonders, IBM is profiting from the astuteness of its overall software strategy and positioning. Who would have thought ?

IBM Software Strategy

In the darkest days of 1990 through 1993, IBM did manage to turn a major leaf. It declared itself to be operating system and programming language neutral. What Microsoft mouthed – “we will adopt any software app or standard if customers demand and numbers warrant”, IBM started to practice and in earnest. Slowly but surely IBM embraced C, C++ and Cobol over PL/I and RPG. Then IBM adopted Java as OS neutral language both on the client and server. That both C/C++ and even more so Java also simplified developing for IBMs own 5 OS/hardware platforms was icing on the cake. Also in the OS arena, IBM has been pretty steadfast in its neutrality – developing system and application software for Windows, Solaris, and various flavors of Unix with alarming regularity. And its support of Linux and Open Source has been strategically brilliant.

In IBMs nearly rock bottom support for open source and standards based software the company has gained leverage on its major software competitors like Microsoft in particular but also others who would adopt limited OS support or proprietary leaning offerings in the marketplace. By adopting Linux and Java on all its hardware platforms, IBM has a single OS and programming language for its applications across all major hardware/OS platforms so IBM can deliver on what Microsoft claims to be its Windows advantage. Because Redmond develops for only one platform in Windows, Microsoft claims it can develop software faster and more resilient than its competitors(like the speed with which it delivered SQL Server 2005, Visual Studio 2005, and Vista or the resiliency of Exchange, Internet Explorer and more recently Office). So IBM is starting to flaunt its advantage.

eWeek in its August 14th 2006 issue (page 13 and following) shows IBM trumpeting Linux Instant Messaging and the advantages that the Lotus SameTime client has – it runs with same features, but native look and feel in Windows, Linux, and the Mac. IBMs VP Scott Handy underlined the point:
“We have now proven to ourselves that this single programming model that spans Windows, Linux and the Mac is now ready. This follows our single programming model for the Server where we standardized on Java.”
On the latter point I would love to know what Websphere, Lotus Notes, IMS and DB2 Viper servers and client side are written in.

And IBM can continue to approach customers with an open and OS neutral strategy with major software pieces. For example, DB2 Viper not only supports the Java development model but also supports Windows XP and Server with extensive hooks into .NET framework, Visual Studio 2005, and other Redmond programming tools. For customers embracing OpenSource, it can offer not only Eclipse Java but Websphere, Lotus Notes, DB2 Viper, Rational Developer tools and a host of other IBM apps running at the very least on the two most popular enterprise versions of Linux – RedHat and Novell Suse Linux.

But perhaps the most astute software strategy at IBM has been its embracing of Open Source and open standards. Unlike Redmond which has attacked Linux and Open Source as a blight upon free enterprise; has wreaked havoc on W3C standards such as JavaScript, DOM, XML, CSS, etc; and has attacked cross platform systems software like Java and now PDF(Redmond has its own proprietary Metro) and Flash (again, Sparkle and XAML are the new proprietary 1 Microsoft Way) – IBM can rightly claim to be a broad standards bearer. Armonk can cite broad W3C and Web standards adherence; leadership on Web Services and XML standards; staunch support for Linux and Open Source like Apache, Eclipse, and SourceForge; plus contentious and even grudging but still committed support of Suns Java.
IBMs Database Workbench – symbolic of its Open Source/Java strategy

So as the market is increasingly demanding open, integrated and more standards based systems and IT apps- it is almost an embarrassing comparison. Redmond continues to build Fortress Windows – increasingly proprietary and tightly coupled. So to run best, users have to invest heavily in an almost gerrymandered set of “it will only run best in Windows” set of apps. But hey – have IT users have any reason to be leery of an all Windows and apps investment on the basis of Microsofts past record in scalability, reliability/availability, security, interoperability or software assurance of price/performance ?

It is ironic that Bill Gates, who snookered IBM 15 years ago on its insistence on “it always runs best on a mainframe”, now is the snookeree on his misplaced notion that he can deliver on “IT always will run best in pure Windows”. And as the wheel turns, IBM is investing more in of all things, software.

IBMs Software Investments

Look where IBM is investing its capital in for the past two years – its software. Starting with $1.1B for Ascential in November of last year IBM has gone on a rip:
– Bowstreet for enterprise development tools
– CIMS Lab for resource and asset management
– Micromuse for network performance tuning
– BuildForge for SOA and SW development automation
– Webify for more SOA based tools
– MRO Software for asset management
– Filenet for Content management and BPM software
This is nearly $5B in less than a year. Obviously Armonk believes that software is a good investment. It is almost a contrarian view. But lets examine some of the reasons why such investments might make an awful lot of cents.

First, we have shown that IBM has positioned itself strongly in the enterprise space against Microsoft. IBM has pioneered in XML, Web Services and SOA. IBM also has embraced Open Source enough to neutralize its impact. IBM does not depend on programming languages or operating systems for major revenue streams. It can even give away commodity Web and Application servers. Also IBM is adopting more Open Source methods – much of its programming tools and applications offer extensive if not complete free trials and copious amounts of free documentation. With foundation software that IBM uses like Linux, Eclipse, Apache, PHP, Derby, and other Open Source tools, IBM can say that a lot of its base is Open Source. Even with Java, XML and Web Services IBM makes big chunks of software free and/or Open Source.

So IBM sees its opportunity in conjunction with but also beyond the Open Source and increasingly commodity layers of the software stack. It is in the increasingly difficult layers of heterogeneous, multi-platform, often SOA/Web Services based, multi-step business processes that its solutions can either stay ahead of the competition and/or be competitive advantage proprietary – and customers will be willing to pay a premium for these state of the art software services.

However, there is a caveat to IBM: Software Powerhouse. In his August14th article in Information Week describing IBMs software buying splurge, Rick Whiting cites Forrester analyst Connie Moore who says – “To make all this work will require close co-operation between IBMs Information Management unit , of which Filenet will become a part, and IBMs WebSphere and Lotus operations. This coordination may not be easy. IBM has had difficulty in the past getting those parts of its Software Group to work together”. Amen.

(c)JBSurveyer 2006

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