IBM’s pitch for the last mile

In May 2007, IBM’s CEO Sam Palmasino declared his intention to grow the company’s $18 billion software division to the point where it would provide 50% of the company’s profits by the end of the decade (it currently provides 40%).

Palmasino was careful to note that this did not mean competing with the ‘Big Three’ of applications software: Oracle, SAP and Microsoft. “We are not going after the space they are in,” he said at the time. “We are going after the thousands of other [companies] in this very fragmented software space.”

But is it possible for IBM to grow its software footprint without treading on those sizeable toes?

September 2007 saw the release of Lotus Symphony, a free-to-download desktop productivity suite that includes word processor, spreadsheet and presentation software that has been spun out of IBM’s Lotus Notes product. It is an unmistakable attempt to disrupt Microsoft Office’s desktop hegemony, the platform from which that company has been able to sell additional application and infrastructure software.

So why is IBM attempting to muscle in on a market it seemed to have given up on many years ago, and in a way which will earn it no revenue? The answer lies in its ‘end-to-end’ software strategy.

IBM does not sell business applications but it does sell almost everything one needs to support them, from collaboration tools and content management software, through to middleware and hardware. And it is doing so successfully: for example, revenue from its WebSphere middleware range grew by 20% in 2006.

This growth has been reinforced by shrewd acquisitions, says Ovum analyst Mike Davis, including that of content management vendor FileNet, which complement existing products and make becoming an IBM-only shop more appealing. IBM’s commitment to open standards has made the integration of its various products, something that dogged the company during the 1980s and 90s, much easier.

Extra revenue has been driven by an increased focus on small- and medium-sized businesses – one of the fastest growing sectors in the software industry. “We never used to be in the business of volume sales,” explains IBM’s software chief Steve Mills, “but now we are selling through SMB channels.”

The logical extension of these two strategies, then, is to introduce IBM software to the desktop that can be easily integrated with the rest of its stack.

Ovum’s Davis believes that the company’s hope is for Lotus Symphony to spread by word of mouth. As users become familiar with the Lotus interface, the barriers to adopting additional IBM software, such as its unified communications toolset, will dissolve. “IBM has realised that the interface is absolutely key,” says Davis.

If Symphony is successful (of which there is no guarantee; Google’s attempts to uproot Microsoft Office have yet to gain traction), then IBM will have a significant presence in software from the desktop to application development to integration to systems management and more. The question then will be, does it have the nerve to complete the puzzle and enter the applications space?

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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