IBM is Serious About SMB

Event Summary

At its recent analyst gathering in New York, IBM Corporation (NYSE: IBM), used the occasion to pound its small and medium businesses (SMB) strategy. "This time we are poised to win the leadership battle" expressed one of their executives. The battle IBM refers to goes back to the early times when Microsoft dethroned IBM in its supremacy over operating systems. IBM has now been involved for more than a decade in enterprise solutions. IBM has been servicing rather large businesses worldwide through its software, hardware, middleware, portal, and consulting services.

By the end of 2001 when the wind had already shifted from larger projects to the small and medium implementations, IBM secured a full contingent of products and a market strategy to establish its position as a market leader. Marc Lautenback, General Manager Global SMB describes the midsize business demand as approaching $173B (US) with a 9 percent compound annual growth rate. IBM is very serious about the market potential of the SMB market and has taken all measures to compete and gain market share. IBM wants to tackle the SMB market with a combination of products and services offered specially to fit SMB characteristics. IBM's strategic combination includes the Express product portfolio, the On Demand approach, the focus on open standards and support for Linux, and a myriad of ISVs and partners.

Product Definition and Market Impact

IBM defines the small to midsize business (SMB) market as companies with less than 1,000 employees; the mid-market as companies with between 100 and 1,000 employees. IBM wraps up its three-layer SMB strategy with:

  1. ISV business applications like Sage, Intentia, and MAPICS

  2. The Express portfolio:
    Express Software
    Express Hardware
    Express Services
    Express Financing

  3. Worldwide business partners to deliver a complete solution

Through strategic alliances with business application ISVs, IBM tends to penetrate the existing mid-market customer base and cover a range of choice with vertical products. IBM's prime intention is to create solid ground for its products and services. To reach its goal IBM has to encourage many software vendors to adopt an open standards platform.

Many of the enterprise application providers have already formed alliances with IBM. Amongst them, E.piphany early this year announced it was bundling the IBM WebSphere application server with the E.piphany E.6 platform. Last year Onyx and IBM made their first e-business On Demand applications for SMBs and Clear Technology offered its C2 CRM suite with IBM's hardware, middleware, and database technologies. Even SAP and IBM formed an alliance to offer enterprise developers a stream of Web services-based APIs. Accordingly, IBM is reinforcing its integration strategy and has already rolled out about 300 adapters for its WebSphere platform, all developed by the company or partners.

The most recent partnership collaboration is on the Siebel front where both companies are preparing to launch a hosting service for customer relationship management software. In return IBM will help its software partners develop more business by using its internal sales and a network of business partners. IBM's strategy is to help existing vendors expand while growing its own infrastructure presence. An ISV ecosystem is critical to IBM's On Demand strategy in the mid-market said Buell Duncan, General Manager, Developer Relations. IBM is leveraging the ISV and developer ecosystem to establish an open standards foundation (J2EE, Linux, etc.) both for on-demand applications and to slow Microsoft from expanding its .Net market.

Despite the overshadowed early days of utility computing by differences in terminology and big promises, IBM strongly believes in the bright future of utility computing and is heavily investing in its On Demand program. The investment is part of a significant push by IBM to penetrate the SMB enterprise application market. According to Elaine Lennox, Director of Marketing for global small and medium business, IBM designed On Demand to leverage its customers' potential to better serve their markets, partners, and suppliers, and benefit from a flexible usage of their application and IT infrastructure. The results will be a lower cost of ownership and a better match to SMB requirements says Lennox.

IBM's confidence in its On Demand or "utility" computing services is now being backed by new signs of growing demand that the outsourcing model could well be working. Even the inflexible Siebel may now want a piece of this action. IBM's pricing scheme, called the Open Infrastructure Offering should allow customers to pay for their entire assets of computing hardware, software, and services with a single fixed monthly payment. IBM's On Demand offering serves both on and off customer premises computing.

The IBM Express series caters to the small and midsize businesses' technology needs. An Express software product has a reasonable footprint, and is easy to install, manage, integrate, learn, and use. The Express portfolio includes WebSphere, Tivoli, Lotus, and DB2. Since cash flow is the most unpredictable attribute of a midsized business, IBM has introduced flexible financing plans to boost its Express sales. Business Partners, whether they are consulting firms like Alpine Consulting, Inc. or software vendors like J.D. Edwards can easily sell and recommend IBM Express offerings to their customers and receive compensation. With DB2 Express for example, priced at $499 for a base server package, (with an additional licensing cost of $99 per user), IBM hopes to attract many SMB IT buyers.

IBM Strategy and User Recommendations

If we simply look at IBM's product line versus Microsoft's applications, in other words the Express portfolio versus Great Plains and MS CRM, there isn't a direct comparison between the two product portfolios and therefore they do not directly compete with each other. The battle between IBM and Microsoft is more on the infrastructure front. Mid-market businesses traditionally support the Microsoft products while IBM is traditionally known as an enterprise product and service provider.

The battle is really going to be waged at the ISVs' level. With its On Demand strategy, IBM has made substantial progress toward its goal. It is more and more possible for businesses to benefit from modular building blocks and step-by-step integration thanks to IBM's hardware and software harmonization. IBM's integration layer is designed to work with its application development and deployment platform, Websphere. The SMB journey is set to be extremely crowded and filled with revelations. IBM definitely needs to share its vision with the outside word and, like Microsoft, become an SMB icon.

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