IBM says it is thinking smaller

IBM is working hard to build up its image as a midsize-friendly vendor. Executives from IBM's software division devoted a day this week to championing two groups: independent software vendors and midsize companies.

          IBM is working hard to build up its image as a midsize-friendly vendor.

          Executives from IBM’s software division devoted a day this week to championing two groups: the independent software vendors (ISV) and partners who embed, install and resell IBM software products; and midsize companies, which IBM hopes will comprise more and more of its customer base.

          Companies with between 100 and 1000 employees represent a potential bright spot in the anemic technology-buying market. IBM estimates that 400,000 midsize businesses will spend $US15 billion next year on middleware - Big Blue’s term for the infrastructure software it makes, including application servers, portals, databases, integration tools and management software.

          They’ll also be spending billions on enterprise applications such as CRM, ERP and supply chain management. IBM doesn’t make these applications, but its partners do. And its partners require middleware to get their apps rolling.

          To keep its symbiotic relationships healthy, IBM announced a slew of new products and support programs to help its partners resell, install, integrate and finance IBM middleware - to midsize enterprises, in particular. Among the new offerings is a line of "Express" middleware products with prices and features aimed at midsize users.

          "Unlike some of our competition, we don’t compete with our partners," says Donn Atkins, vice president of worldwide sales and marketing for IBM Software Group, at the start of this week’s business partner event. Atkins was the first executive [but not the only one] to emphasise the difference in strategies of IBM and Microsoft - which has lately stepped up efforts to sell the ERP and CRM software it gained by acquiring Navision A/S and Great Plains Software.

          For its part, IBM exited the applications business a few years ago, opting to focus on developing middleware and partner with other vendors and resellers for all other applications.

          "We were spending a tremendous amount of money, and it wasn’t very clear, given the other major application vendors in the marketplace, that we were ultimately going to be successful trying to do it all - trying to develop the industry application solutions, the middleware, the components, and the hardware platforms," says Mark Ouellette, IBM’s vice president of worldwide small and medium business software sales.

          Since IBM’s application exit, business partners have become a primary revenue generator for Big Blue. Today about 30% of IBM’s annual revenue comes from its partners. Within IBM’s $US13 billion software division, about 20% of revenue comes from small and midsize markets, Ouellette says.

          For example, 30% of new Tivoli business is through value-add partners, says Michael Twomey, vice president of business development and channels for IBM’s Tivoli Software division. Sixty percent of Tivoli storage management sales comes through partners, Twomey says.

          On the data management side, 47% of revenue is driven by partners who resell or bundle DB2 products or have a measurable influence in their purchase, says Gary Schneider, director of channels and services for IBM’s data management division. That figure is up from just 2% in 1996.

          To keep its prolific partners happy, IBM is investing about $US1 billion in partnering and alliance strategies, executives say. Its efforts include training, support programs, advertising campaigns, and new product development such as the Express lineup.

          With these efforts, IBM hopes to overcome the perception that it caters only to large companies with multimillion-dollar budgets. Its partners hope to gain some leverage against Microsoft’s mounting mid-market threat.

          Les Wyatt, chief marketing officer at JD Edwards told the audience that Microsoft’s entry into the applications business amplifies the importance of JD Edwards’ partnership with IBM.

          "Microsoft is moving very aggressively into the applications space, and I think many ISVs see that as a major threat to their business," Wyatt says. "They see Microsoft with an initiative to try to own it all."

          IBM doesn’t pose such a threat, analysts say. For ISVs, "IBM represents a technology partner completely disinterested in building applications and is willing to bring significant marketing dollars to the partnership," says Bob Parker, vice president and general manager at AMR Research.

          "Don’t bet against it."

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