In February 2007, IBM announced the System i Vertical Industry Program (VIP), a new partner program targeted at providing solutions to key client verticals in key geographies. During an analyst briefing in March, IBM indicated not only that it had identified 80 sub-vertical niches, but that it had launched 80 "micro-vertical" betas—in industries such as hospitality and casino as well as manufacturing and healthcare—in 15 countries. Fast-forward to July 2007 to IBM's much-publicized memorandum announcing its plans to divide the System i franchise into the Power Systems unit (for large enterprise customers) and the Business Systems unit (for SMBs).

Given the July announcement, it seems like a good time to take a closer look at the System i VIP and what the impact of the i-divide will be on that new program. (MC Press was not able to speak directly with Peter Small, Director, Business Partner and ISV Sales, System i, as well as architect of the System i VIP, for this article.) Let me state up front that while it is too early to tell, this analyst has decided to look at the facts—few as they may be—and engage in some informed speculation.

Reeling In the ISVs

During a recent discussion with Mark Shearer, IBM VP and Business Line Executive, IBM POWER Systems, MC Press learned a bit more about System i VIP. For example, since February, IBM has identified 130 industry segments.

The System i VIP program appears to indicate a strategy of application solution granularity that marries targeted sub-industry verticals with very specific geographies. Examples include fruit and vegetable distributors in the Benelux countries, small regional retailers in India, small health facilities in the UK, etc. In fact, IBM is actually penetrating deeper into the fabric of these "sub-verticals" in specific geographies and partnering with local ISVs that develop specialized solutions. In MC Press's discussion with Shearer, we learned that other possible niche markets could include, for example, produce markets in Paris, labor unions in New York City, small pharmacy systems in Alabama or in very rural geographies, etc.

In a March analyst briefing, IBM featured two vendors that had partnered with IBM in the System i VIP: KMR Systems, which provides customized solutions to labor unions, healthcare, and pension, and HarrisData, whose products run exclusively on System i and which provides full enterprise application solutions to customers in the manufacturing and distribution industry verticals. The System i VIP is apparently offering marketing programs targeted at the sub-vertical industry, providing dedicated sales resources and enabling these ISVs to obtain leads faster as well as close business sooner.

It appears IBM is seeking not to enable masses of ISVs, but to focus the lens inward and target selected vertical segments in specific geographies. As Shearer pointed out, what it takes to be successful in a bakery and in a bank is not the same thing. Heretofore, this has not been an IBM strategy, as the company has tried for over a decade to tap into the seemingly impenetrable and esoteric SMB market, which pundits and vendors estimate is from $200 to over $500 billion worldwide (please see Analyst Views, a service of Bitpipe reports).

However, IBM now seems to have a better grasp on the magnitude of the SMB market. In a recent article on eWeek Channel Insider, Michael Vizard wrote that in the "keynote speech at [IBM's] PartnerWorld conference, IBM Chairman and CEO Sam Palmisano predicted that the small to medium business market will become IBM's largest customer segment in five years. SMBs will rock!

It's Déjà Vu All Over Again

Or is it? The System i VIP is new and innovative. However, we have seen some other IBM Business Partner programs, which showed great promise early on, fold because ultimately they could not sustain the momentum. Some programs were written off completely, while others were renamed multiple times, with each successive designation plunging it further into esotericism. Other products/programs have simply been sucked into the black hole of "best-kept secrets," never to be heard from again.

However, I believe that with the announcement of the i-divide and the resulting creation of the Business System unit aimed exclusively at SMBs, not only will the lower-end System i platform be reinvigorated, but both the System i and the System i VIP will get the boost they need to address the needs of SMB customers in a complete and integrated turnkey fashion—hardware, middleware, and application software. The System i VIP should, I believe, become more strategically aligned with the Business System unit as time goes by—strengthening and enabling both. And I believe this is just the tip of the iceberg for IBM's re-engagement with the SMB market.

And, while it is not likely that IBM will recapture the glory days in which the AS/400 system and the AS/400 ISVs were inextricably intertwined, it appears that IBM has tapped into—and will continue to provide—innovative and unique programs to address the very real and immediate business needs of SMB customers.

SMB: Lumpen No More

Over the years, many vendors and pundits have tried to define the SMB market. According to Vizard, "IBM defines the SMB market as customers with 250 to 1,000 employees...." I refer to this as the "lumpenSMB"—disenfranchised and undifferentiated. I recall IBM's designation of its customer market as the following: one to 99 employees is considered small, 100 to 999 is medium, and 1000 and over is large. However you slice and dice the market, the fact remains that not only are the business needs of the SMB different from those of large enterprises, the business needs between the "S" and the "M," (in the SMB) as well as among the "M," are different.

As an analyst, I always maintained that the "M" in SMB was comprised of several entities: small, medium, and large, while the "S" in SMB was a galaxy unto itself.

The only way IBM will be able to realistically go to the table with SMB customers is if it can tease out the various segments and their unique business requirements (which it appears to be doing with the System i VIP and the newly created Business System unit) and expound upon these first steps in the future. This is a complex venture as the selling to and servicing of SMB customers reside almost exclusively in the purview of Business Partners. This means that IBM must set standards and provide guidance and opportunities—with commensurate rewards and remuneration.

Keep Your Friends Close and Your Enemies Closer

In its February 2, 2007, press release, IBM announced the System i VIP and focused squarely on the casino industry. It appears that, for competitive reasons, IBM is keeping the "other" sub-industry segments somewhat of a carefully guarded secret because the company is concerned that its competitors may seize the concept—so to speak. I am not advocating that IBM let the proverbial cat out of the bag on this, but in order to gain market share, maintain momentum, and provide press and analyst coverage, it would be prudent to generate interest by sharing some details with, as well as provide regular updates to, the System i community (i.e., customers, business partners, and analysts/journalists). IBM has seen the negative impact of keeping products and services close to the vest. Customers lose interest, and programs/products falter. If we are in an era of open systems and integration (System i supports i5/OS, AIX, and Linux as well as Windows, and BladeCenter is following on the heels of System i in its integrative capabilities), IBM will need to adjust its own corporate culture to the changing times.

Maria A. DeGiglio is President of, and Principal Analyst for, Maria A. DeGiglio & Associates, an advisory firm that provides clients with accurate and actionable information on business and technology initiatives. You can reach Ms. DeGiglio at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .