If IBM's Business Partners harbored any doubts that the company is committed to small and medium businesses (SMBs), the IT giant put those doubts to rest at its recent PartnerWorld conference. Besides unleashing new SMB initiatives, IBM made it clear that it will compete fiercely with Microsoft for SMB accounts.
As I mentioned in my article last week, IBM used PartnerWorld to announce new programs for recruiting vendors of vertical industry software, many of whom serve the SMB market. In addition, the IT giant laid out explicit objectives for increasing its SMB market share. IBM's Software Group, for instance, wants to gain 10,000 new SMB accounts in 2004 and potentially double that number in 2005. IBM's Systems and Technology Group wants to double the server and storage revenue that it realizes from SMB firms. Even IBM Global Services said it has goals to sell more services to SMB through partners, though it declined to reveal its target figures.
To achieve these goals, IBM is putting some serious money behind its SMB initiatives. According to Marc Lautenbach, IBM's General Manager for Global SMB, the company will spend around $200 million this year on advertising that explicitly targets SMB firms. This figure is a substantial increase from last year; to underline this point, Software Group said that it alone will spend four times more on SMB advertising in 2004 than it did in 2003. While the iSeries will get plenty of face time in print ads, it probably will not be promoted by name in television spots. Then again, neither will the pSeries nor zSeries mainframes. Instead, IBM will devote the bulk of its airtime to its SMB expertise, its Express offerings, and its Intel servers and PCs.
Speaking of Express offerings, IBM also intends to more than double the number of products and services in its Express portfolio over the coming year. As part of that increase, the iSeries will gain OS/400 versions of additional Express products. Among them will be an iSeries version of DB2 Content Manager Express that should ship sometime during the middle of this year. IBM will also ship a new product--WebSphere Business Integration (WBI) Server Express--for the iSeries and for Intel servers running Windows and Linux. While IBM has already shipped WBI Express for Item Synchronization, it does not yet offer an Express version of WBI that supports all of the product's adapters and interfaces. That is what WBI Server Express will provide. IBM intends to ship a Windows version of WBI Server Express in two to three months and the Linux and iSeries versions in four to five months.
Besides beefing up its Express portfolio, IBM is also launching new initiatives to get Business Partners to build their solutions on Express products. Among these, the most ambitious one is Solutions Builder Express, a program to help partners develop solutions on IBM's Express products that target specific business requirements. Under the program, IBM will provide partners with Solutions Starting Points that contain detailed information about building and deploying specific types of applications on Express software. The current crop of Solutions Starting Points focuses on six areas: business integration, business intelligence, content management, e-commerce, infrastructure, and portal/workplace. Over time, IBM will add Solutions Starting Points that address specific needs within the automotive, banking, consumer packaged goods, electronics, finance, insurance, retail, and wholesale industries.
IBM is also making it less expensive for partners to deploy their applications on Express products through the Integrated Runtime Express offering. The offering contains pre-integrated runtime versions of WebSphere Application Server Express, DB2 Express, and IBM's HTTP Server that developers can purchase at substantially discounted prices. Integrated Runtime Express also contains tools that let developers automate the installation of their applications and the Express runtimes on customer systems. According to beta users of the offering, these tools have substantially reduced the time it takes to install and configure solutions at customer sites. Since deployment time and complexity has been a weakness for many Express-based solutions, this is welcome news. IBM will make Windows, Linux, and OS/400 versions of Integrated Runtime Express available to its partners on March 26.
Since many SMB solution providers base their products on Microsoft technologies, IBM also used PartnerWorld to unveil a new Web-based resource to help those providers expand beyond Windows. That resource, Migration Station, organizes IBM's collected knowledge about migrating to Java, Linux, and the company's middleware. While Migration Station focuses on Windows developers, it also provides migration aids for non-Microsoft technologies such as Oracle, OS/2, and Solaris.
Hype or Reality?
For the first time in PartnerWorld history, IBM laced its SMB announcements with a hearty dose of Microsoft bashing. One IBM executive, for instance, gleefully recounted how a partner likened himself to a Mini Cooper that was in danger of being run off the road by a Hummer driven by Microsoft Chairman Bill Gates...that is, until IBM showed up to flank him with two Hummers.
While IBM is talking a good game, it is highly unlikely that it will win many accounts from Microsoft in the "small" end of the SMB market: that is, companies with fewer than 100 employees. IBM is also unlikely to win many medium-size firms--companies with 100 to 1,000 employees--that run entirely on Windows. Instead, IBM has its best chances of beating Microsoft in medium-size businesses that use Windows and at least one other server operating system. According to IBM's market research, around 375,000 of the world's 500,000 medium-size companies fall into this category. By my calculations, at least 150,000 of these 375,000 firms already own IBM servers. The rest use systems from Hewlett-Packard, Sun Microsystems, and a variety of second-tier vendors.
Even though IBM is targeting Microsoft, it will likely take more SMB market share from these vendors than it will take from Big Red. With Hewlett-Packard phasing out its legacy server lines and Sun getting outflanked by Linux, many of these vendors' mid-market customers are considering IBM for their core business systems. Of course, IBM will also gain some Windows workloads, particularly from companies that use Windows NT 4.0 and resent Microsoft for forcing them to upgrade or lose support. However, many of these companies are conservative firms that spend as little as possible on IT. As such, their overall contribution to IBM's SMB revenues may be significantly less than that of the Sun and HP converts.
Still, IBM's new SMB initiatives present a serious long-term threat to Microsoft. By aggressively recruiting mid-market software vendors and the partners that distribute their products, IBM could limit Microsoft's ability to sell enterprise applications to medium-size companies. That could deal a crippling--if not fatal--blow to Microsoft's Business Solutions group, which wants to grow the company's enterprise applications into a $10 billion franchise. If IBM locks up a substantial share of the mid-market, it could put that goal out of Microsoft's reach. While IBM has a long road ahead of it before it can gain that substantial share, it made an admirable start at this year's PartnerWorld.
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at
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