IBM Express-es Its Candid Desire For SMEs Part Three: Challenges and User Recommendations

IBM's Challenges

Despite IBM Corporation's (NYSE: IBM) clout at selling its services, its recognition as an SME product provider has yet to be established, although the mid-market segment has accounted for $20 billion in 2002, which was almost a quarter of its $81 billion total revenue in 2002, and without the newly allocated resources for the Express program, which include a 6,000-person sales organization and a $200 million marketing budget. Still, that revenue was mostly due to selling hardware and middleware components, which still does not provide IBM with much brand visibility compared to true enterprise applications providers.

IBM still suffers from the image problem of being associated with products and services for very large organizations, and it will need to muster a major marketing effort to convince buyers that it can deliver appropriate and cost-effective systems for small businesses. Some improvements still seem to be needed in IBM's overall service, particularly at the desktop level and regarding problems in IBM's services complex delivery model and coordination of services. Therefore, IBM still needs to convince users that it is nimble enough to handle the smaller projects prevalent in today's cost-conscious market, which may be a concern that is aggravated rather than alleviated by the PwC's acquisition.

IBM will also have to closely walk on the tightrope of offering custom-built applications versus pre-built, packaged applications. Except for a notable example of mySAP All-in-One for Wholesale Distribution, there are still only a few low-cost, pre-integrated solutions, causing IBM Global Services (IGS) to still struggle with small/midsize business market. IBM is still finding a way to drive out costs by operating large-overhead PwC Consulting within the IBM infrastructure. This may be a major hurdle as IBM's overhead add-ons might still make IBM Global Services' bids too rich for all but the largest organizations.

Overcoming the Microsoft barrier entry will likely be the major challenge, given Microsoft's ubiquitous position within the SME segment, particularly with products like Office, Exchange, Visual Basic and SQL Server. Also, while the price is indisputably important to SMEs, the service & support and easy administration of the product is often of much more importance. It is still quite early to judge WebSphere Express' proven total cost of ownership (TCO).

In addition to Microsoft's threat, although IBM has a mighty sales and delivery channel, the task of coordinating and even-handedly managing 90,000 business partners through its Developer Relations division will be colossal. The success of the Express offering will depend on the industry-specific add on application solutions provided by ISV partners atop IBM's technology stack, which leaves the TCO story in the hands of these vendors rather than in IBM's. Also, IBM's success will be dependent on its partners' zeal to inform and educate the SME prospects of the Express' value proposition. The task of fostering customer's best interests before the interest of individual ISV partners, such as promoting multi-partner mix-and-match solutions on IBM technology, will be difficult given vendors' individual interests and vanities. For example, one will likely see on the standard menu individual industry solutions from e.g., J.D. Edwards, MAPICS and SSA GT that virtually offer similar solutions rather than a combination of these as to offer the optimal solution for a customer.

The vendor will also have to overcome market perception that IBM will just push its own technology, which might sometimes leave customers wondering if they got the best overall solution available. IBM will have to preserve IGS' objectivity without coercing its consultants to necessarily sell IBM-based solutions. Then, for IBM, there is always the issue of technology neutrality. To help users move to integrated SCM technology strategies, it will also have to fully support non-IBM third-party integration tools.

This is Part Three of a three-part note. Part One summarized the event.

Part Two discussed the Market Impact.

User Recommendations

IBM remains a good choice to deliver solutions for complex/changing computing and IT infrastructure services, particularly on Unix, Linux or Intel servers. Although it might have not been such good a choice for simple computing problems, and small/midsize business (both in hardware, software, and services terms) in the past, mid-market enterprises should evaluate the Express portfolio as an alternative to Microsoft's infrastructure. However, due to the product's immaturity, look for firm partners' evidence of skills and industry-specific solutions.

Larger midsize enterprises that are looking for a functional depth in particular industries of IBM vendor partners' focus should certainly consider these vendors' mid-market offerings on IBM Express technology stack and carefully determine their needs and implementation time framework, bearing in mind problems typical with new product releases and new partnerships' arrangements. In any case, give IBM a chance to prove that its partners may represent it as nimble and local enough while the vendor remains huge and global. Still, the nature of the partnerships in every particular case (i.e., the vendor's and the VAR's commitment, vertical specialization, client references) should be thoroughly investigated.

On its hand, IBM must prove that it truly understands the needs of the target market, that it can provide adequate comprehensive support, and that its products are both cost-effective and palatable, while still with more than adequate functionality for midsize businesses. The sophisticated functionality of IBM solutions should be appealing to the upper-end mid-market customers, but this typically comes with levels of complexity and support that midsize businesses may find overwhelming (i.e., a need for more than basic Java programming skills).

On the other hand, if a midsize business already has some complex requirements (e.g., multiple lines of business, internationally dispersed operations, etc.), it should consider the upper mid-market offerings of large market vendors as a step towards upgrading to the full suite down the track, anyway. Although some preconfigured solutions may provide the best of both worlds as industry templates lower cost and complexity and give mid-market companies a strong foundation to build upon, there is still support for extensions based on each customer's need, and thus, make sure that you do not sacrifice functionality and/or customizability for the sake of a quick implementation, since that may cost you more in the long run.

It is indisputably difficult to select a service provider in markets that are fragmented, immature and rapidly consolidating. The niche specialists should not be downplayed, although it is increasingly sensible to scrutinize their financial viability, particularly in terms of balance sheet, management profiles and customer base. Potential customers should proceed with caution, buying components only in a tactical manner and with a clear quick ROI (in less than a year payback period). Investigate the IBM's contractual responsibility in case of its ISV partner's financial troubles and/or acquisition.

Be aggressive during negotiating risk allocations, price parity and general terms and conditions. Fixed project prices (as opposed to time and material pricing), milestone payment schedules linked to deliverables, and a penalty clause for late deliveries (as well as the profit sharing incentive for early completions) should be a matter of course. Also, it might not hurt to consider reviewing your current processes and systems as to find any still undetected malfunctioning practice in, e.g., accounting and/or financial reporting.

Organizations seeking a Web-based solution and out-of-box functionality with some customization may benefit from evaluating the IBM hosted offering. Despite bad perceptions of largely ill-fated first generation of hosted providers, and owing to positive news some vendors like Oracle have lately gained from outsourcing, mid-market enterprises might benefit from objectively evaluating the value propositions represented in successful next-generation application service providers (ASPs). Particularly the enterprises in need of outsourcing but with likely capacity fluctuations due to seasonal peaks, and those that are dynamically growing and/or divesting, might benefit from IBM's "on-demand" offering.

On a more general note, as leading applications vendors have been reaching parity across many functional areas, new users should base their software purchase decisions on many other criteria like impending integration costs, product usability, product architecture, and TCO. Given vendors' zeal for new license revenue, do avail yourself of vendors' assistance in identifying return on investment (ROI) in the concrete case, in application customization for vertical industries, and in integration to your legacy applications. Also, insist on "scripted business scenarios demonstrations" or "conference room pilots," or even on the opportunity to conduct extensive system tests within your environment.

As for Microsoft followers, they should be pleased with Microsoft's execution of its Web Services strategy by delivering a production-ready .NET platform. Microsoft remains a good choice for Windows environments with an abundance of PC desktop-oriented activities, and that are involved in next-generation platform (e.g., .NET and Web Services) development/deployment. Microsoft might not be such good a choice for complex organizations that need solutions for complex computing problems (a high-volume backbone ERP system that uses publish-and-subscribe message-oriented middleware (MOM) and multi-vendor integration projects (hardware, software, services)), solutions where security is of high concern, and projects where cross-platform is a matter of course, and where most application developments are done in Java.

Also in general, beware of any vendor that is inclined to create much dependence on its technology, as it leads to unjustifiable price increases, and a declining openness in the future. The above new offerings still include some proprietary components, and risk-averse customers should wait for products' maturity and wider acceptance.

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