In-Depth

Special Report: Inside IBM’s software plans

• By Jack Vaughan, Michael W. Bucken
• September 1, 2004

The IT industry is at the crossroads again. Yet some things are familiar. No one knows what “next big thing” is lurking around the corner, and corporate buyers are more selective than ever -- but Big Blue is the player ahead on most lists. If it is not growing by leaps and bounds, it is surely on top. And at least one primary IBM planner seems to relish the role.

“The post dot-com bubble era has been a time of introspection, compliance and well-orchestrated buying,” said Steve Mills, senior vice president and group executive for IBM software. “Most CIOs have relatively little discretionary money. The focus is on the here and now with available dollars.”

With $89.1 billion in revenue for 2003, IBM is well ahead as king of the IT hill. Smaller overall, but now ahead in software revenue, is Microsoft Corp., whose 2003 fiscal year revenue, largely comprising software revenue, was $32.1 billion. [Editor’s note: Numbers just in for fiscal 2004 put Microsoft’s total at $38.8 billion.] IBM reported software revenue for fiscal 2003 of $14.3 billion. The coffers are such that Mills has been able to do some “well-orchestrated buying” of his own.

IBM has managed to tough out the turbulence that drastically changed the software business. IBM leveraged a mix of hardware, software and services to improve its results in the industry sectors, such as the public, financial service and industrial segments, it considers key. The company followed its ramp-up of Java with a big push on standards-based Web services, and has been a very successful player in the new Linux OS segment. Coming up on the agenda are wider pushes into autonomic computing to ease deployment headaches, as well as into pervasive computing to expand the notion of computer clients that cover more of the world.

IBM has grown its developer-oriented Web sites, and gained sales among ISVs. The Software Group has closed a number of very high-profile company acquisitions and folded most of those new purchases into the IBM portfolio with newfound briskness and efficiency. Software Group managers work carefully to make sure software initiatives adhere to the right standards and can play with other IBM offerings. After its 2002 purchase of Rational Software for more than $2 billion, and the considerable effort to fit its application development life-cycle suite into the IBM portfolio, the new Rational Division is preparing its next big tool release, which is presently code-named Atlantic. IBM’s recent, much-watched Lotus Workplace initiative pulls together elements across IBM, and is poised in part as a new breed of client technology that could someday stem Microsoft’s client-side software domination. But things were different in the 1990s.

Decline and rise
Through the 1990s, IBM and longtime software head Mills faced serious issues that at times threatened the company’s future as the largest provider of products and services to corporate IT organizations. Mills has seen IBM through many software challenges as a top Software Group (and before that was formed in 1995, the Software Solutions Division) executive for several years. “I’ve been involved in building software at IBM for 17 years, since before the IBM company took software seriously,” Mills said.

First, Big Blue faced a predicted rapid decline and demise of its mainstay mainframe business as corporate IT looked to replace the behemoth machines with smaller, less-expensive Unix systems and the desktop PC. The rise of the Windows-based PC led upstart Microsoft to the prime spot on the desktop. That momentum helped take Microsoft to a top contending position in the corporate data center with its Windows NT OS and the applications that long ago became standard in most organizations. By the early 1990s, industry experts warned that any such replacement of IBM back-end servers could prove fatal to the IBM systems business.

IBM faced Microsoft and a slew of other competitors at that time with a lot of resources, but without a great deal of momentum. Nonetheless, IBM beat back those challenges by maintaining its mainframe business and diving headfirst into the Unix and then Linux businesses, gradually eliminating its role as the leader in proprietary systems manufacturing. The success of those moves allowed IBM to enter the new millennium sharing the top of the high-technology mountain with Microsoft.

And IBM has some momentum as it enters its new challenges, including a decline in IT spending and the end of an era of corporate buying of technology for technology’s sake. The decline of the mainframe is over as corporate IT operations found they could not part with the big machines. While the traditional Unix business has been sliding industry-wide for a couple of years, open-source Linux is growing and IBM has been a vital force in the spread of that Unix-like OS into corporate IT centers.

Software sales have been flat in recent quarters, but executives contend that IBM’s open software strategy should soon broadly increase the firm’s potential market and revenue opportunities. Executives say IBM growth depends on a successful software operation.

With the Rational purchase, IBM has a tool to help collaboration among the important members of its Global Services Group, the crown jewel that led Samuel Palmisano to IBM leadership after Lou Gerstner’s retirement in 2002. As well, Rational gives IBM one more tool to use as it goes after ISVs in a game that again pits the firm against Microsoft.

The ISV push is part of an evolution, said Buell Duncan, general manager, ISV and developer relations at IBM. “In the 1980s, when you thought about IBM, it was blue suits and blue suits only, a direct sales model and a company that was all proprietary technology,” he said. “Today you think about a company that is driving standards and that is passionate around partnering.”

Certainly, Linux software has provided impetus for IBM’s efforts to stay on top. The company claims that its upcoming Rational “Atlantic” toolset will provide one of the most thorough Linux development environments yet seen.

“Linux is incredibly important at the system level,” said John Swainson, longtime head of IBM’s WebSphere business, who was recently named to oversee all software sales. “Twenty percent of WebSphere business is already on Linux. That’s been a remarkable shift for IBM. Linux is obviously extremely important to our strategy.”

The company’s fast embrace of open-source Linux standards stands in contrast to competitor Sun Microsystems’ tentative clasp. Some say IBM’s Linux success induced Sun President Jonathan Schwartz to publicly muse last month about a possible Sun acquisition of Novell, a purchase that would give the struggling IBM systems rival control of one of the two key providers of Linux software to IBM.

Right time for Workplace?
With its data center business stabilized, IBM has started a move that could challenge Microsoft on the desktop. The company has prepared a rich client known as Workplace that may, if IBM pushes the technology, compete with Microsoft once again for the desktop. But IBM executives downplay that tactic, saying that we will not see another Windows vs. OS/2 battle. For his part, Mills contends that the move continues longtime IBM strategies.

“The client has been part of our thinking for years,” Mills said. “We bought Lotus for a reason back in 1995. We’ve had initiatives for seven years around pervasive devices. The idea that Microsoft is [on clients] everywhere is baloney. IBM is in cars, PDAs and in many other devices. The end-user experience has always been a piece of the puzzle.”

The new Workplace technology, described by Mills as a “logically, physically consistent infrastructure,” has piqued the interest of technology gurus and IT managers alike.

Ambuj Goyal, general manager of IBM’s Lotus unit, suggests that IBM Workplace germinated at the point development leaders in the Software Group “believed network-centric computing had reached the point where we got it right. So now is the time to deliver value [via a] capable and simple set of tools.”

In fashioning Workplace, IBM heavily utilized a variety of Software Group technologies -- WebSphere Portal, WebSphere Everyplace, Eclipse, Lotus Notes/Domino and even an embedded Java database culled out of IBM’s 2001 purchase of Informix. Lotus coordinated the development in creating a new client technology that Goyal said can create a low-cost, rich user experience. Notably, Goyal is the first head of Lotus to be located in IBM’s Somers, N.Y., facilities.

As Microsoft forges ahead through an always difficult generational shift from Windows XP to Longhorn, and as developers decide whether to make the more difficult than expected change from Visual Studio to the .NET development technology, IBM may have an opening here. Still, Microsoft has not been standing still and has maintained its revenue and profit momentum in recent quarters. Its server-side story has been getting stronger.

While it has kept an eye on the front end, the company has strengthened its place on the back end as one-time bitter rivals like Sun (on the hardware side) and Computer Associates (in the systems software business) have struggled mightily. Besides Microsoft, only Hewlett-Packard, with revenue of $73 billion in fiscal 2003, is at present testing IBM’s resolve in more than niche markets. From IBM’s perspective, the primary software competitors today are Microsoft, Oracle, BEA and, to some extent, SAP as it enters the middleware business. Overall, IBM targets HP and Dell.

Has IBM beat back BEA, its closest commercial Java app server competition? “Yes, to some extent,” said Mike Gilpin, vice president and research director at Forrester Research Inc. in Cambridge, Mass. “I think the answer varies by vertical. In manufacturing and insurance, IBM is dominant, whereas in utilities/telecom and financial services, BEA still has a strong foothold and IBM does not appear to be in a position to vanquish them. Both still have a strong portal solution, so in that domain BEA is hanging in there, whereas in the enterprise-mobility space IBM has a strong advantage.” (See “What’s behind BEA’s big bet on tools? ,” ADT, August 2002, p. 48.)

“IBM has been building strength upon strength ever since the WebSphere platform strategy came together a few years ago,” noted Gilpin. “The company began to pursue a more integrated strategy across all the labs that contribute to that product line. It wasn’t pretty then, and it’s not perfect now, but the pieces are starting to come together quite nicely.”

To merge and acquire
IBM has not been shy to buy what it wants. Also, it has been aggressive in integrating what it buys. IBM has gained a momentum of sorts, buying a once-competitive systems management house here, a longtime tools partner there and interesting upstarts -- with or without customer bases -- everywhere.

Purchases span the software spectrum. There was systems software pioneer Candle Corp. in 2004 to add WebSphere tools and software for managing an on-demand environment; Rational Software in late 2002 to bolster IBM’s line of development tools and quickly expand its Eclipse support; and Holosofx, a business process management and modeling toolmaker, also in 2002. On the data management side, IBM acquired once-high-flying RDB maker Informix (along with the Cloudscape Java database it had acquired); and Crossworlds, an early leader in the so-called enterprise application integration, or EAI, business. Of course, these followed by a few years the first wave of software buys led by Lotus Development and Tivoli Systems.

In addition to straight acquisitions, IBM has signed agreements with a slew of emerging players in the Grid computing business. At this point, IBM has signed some sort of deal with most of the top firms, which should give it insight to the most promising technologies should the time to buy Grid companies arise. Meanwhile, IBM has expanded its ISV push to get at Microsoft, and has initiated a venture capital program to identify clever start-ups. And in July, IBM opened up its money chest to buy “data warehouse-in-a-box” provider Alphablox and performance house Cyanea.

[Once the Cyanea sale is final, technology will immediately be integrated into IBM’s Tivoli systems management software products, said Robert LeBlanc, who headed the Tivoli unit until only the day before the Cyanea sale announcement. LeBlanc has moved to replace John Swainson as general manager of IBM’s Application and Integration Middleware Division in another of IBM’s semi-annual manager rotations. Swainson, as mentioned above, moves to head all sales of software, while former Lotus general manager Al Zollar was named to replace LeBlanc as general manager of the Tivoli systems management operation.]

Along with products from IBM’s recent acquisition of Candle, the Cyanea software allows Tivoli to provide comprehensive management of composite business apps, LeBlanc said. He noted that a combination of products developed by Tivoli with the technologies acquired from Candle and Cyanea will allow IBM to offer customers “tools on a common infrastructure that really address application management.” This has been a recurrent theme from IBM of late that will continue in the future.

For the database group, the purchase of Informix was something of a turning point in the relational DB competition with Oracle. IBM’s DB2 has grown share vs. Oracle in recent years, even as IBM’s Informix legacy business has declined. Stamford, Conn.-based analyst firm Gartner Inc. estimated 2003 worldwide RDBMS software new license revenue for IBM at 35.7%, Oracle at 32.6% and Microsoft at 18.7%. Gartner pins IBM’s growth on DB2 on the iSeries and zSeries platforms, and an ISV program that focuses on penetrating smaller businesses.

With the Informix purchase, IBM scooped up useful replication technology, talented data designers and more. The IBM machine, it seems, has converted intangible elements into tangible benefits.

The company clearly rolled with the punches as DB technology became yesterday’s news, and corporate IT focused on overall solutions.

“When we think about how we’re evolving our information management products, we’ve gone from relational databases to an information infrastructure,” said Janet Perna, head of IBM’s Data Management Group. “And this information infrastructure has middleware for integrating, placing, analyzing and accessing all forms of information, whether it’s in an IBM data store or not.”

Added Perna: “We’re building a platform for supporting the next generation of apps in support of On-Demand [computing]. We’re building on Service-Oriented Architectures [SOAs] for the next wave of apps, and the WebSphere platform with Java and J2EE is the runtime platform for supporting this.”

She notes that the data group has steadily grown its non-structured content management expertise. That move could gain steam if the IBM Lab’s work on Masala search technology bears fruit.

Interchangeability of components, in this case for content management, again is a theme. “These solutions also have workflow elements associated with them. We use the Tivoli storage manager as the hierarchical storage component, and the WebSphere application server as the runtime environment,” said Perna. “The content repository and the related services around the content are part of DB2. When you buy the content manager, what you’re getting under the hood is some Tivoli componentry, some database componentry, some Lotus componentry and some WebSphere componentry.”

Closely watched will be the next version of the DB2 UDB, which has been code-named Stinger. One of the key technologies there is high availability, and one of the aspects of that is high-speed data replication, said Perna.

IBM nation
Observers say IBM is moving far more quickly to integrate recent acquisitions into the IBM nation than was done with the Lotus and Tivoli moves. Each of those long-established firms was allowed to first operate independently of the rest of IBM in an effort to retain valuable employees and to minimize disruption. Eventually, each one was integrated into the IBM Software Group. It then took years for their technologies to spread into products throughout IBM.

Rational, on the other hand, was immediately integrated into the Software Group as a division headed by Mike Devlin, who had co-founded the firm more than 20 years earlier. IBM immediately established Rational as a Software Group unit and quickly added the WebSphere brand name to the Rational portfolio of development tools.

Devlin has remained general manager of the operation since the acquisition, with ever-increasing responsibilities that culminated early this year when the Rational unit gained control of all IBM development products, including the WebSphere Studio suite of tools. Observers note that Rational and Devlin have also proven to be IBM team players by agreeing to let the WebSphere Business Integration Modeler, aka Holosofx, development team take responsibility for building a next-generation business modeling tool. Such inter-departmental cooperation was once unthinkable within the walls of Big Blue.

Mills said IBM’s acquisition plan has evolved through the years. “We’ve done 36 acquisitions since 1994,” he said. “There were a couple early on that we integrated quickly” but Lotus and Tivoli were allowed to operate independently for some time. Since that time, “we have found that the fast integration model paid more dividends than the slow integration model, so we moved entirely to the fast integration model.

“A company has to be ready and willing to be integrated into IBM,” he said. “I’m not looking for subsidiaries.”

Meetings of the minds
The company is moving just as quickly to boost its software business. It is trying to become the same kind of software factory that it promotes to enterprises and ISVs that would buy its Rational process tools. Years back, Mills issued orders to remake the Software Group into a collaborative organization that can utilize any IBM software technology as it sees fit to better utilize technologies like WebSphere and DB2 throughout the corporate development operations. These long-standing orders are now seeing daylight.

Mills said he has long meant for each unit to build reusable technology that could spread throughout the Software Group, but that developers were limited by available technology. “People were doing what they were supposed to do. We had to build out a componentized infrastructure for reuse. We’ve done that and now we’re getting 150 reuses of WebSphere, [and] a comparable number of DB2.”

“It was synergy,” explained Danny Sabbah, vice president of Software Group strategy and technology. “We decided to bring together the development efforts of the brands, to have an overarching focus rather than a brand focus. We started the change about 18 months ago and began shifting our resources.”

Sabbah and his team have been a focal point for software integration within IBM. He was moved into his role only about two years ago because he had to first complete his work as head of WebSphere development, a position he had held for several years. “His role in leading WebSphere development was critical,” Mills said. “WebSphere is such a critical underpinning. Over the past year he finalized that role and can hand that off and engage in broader, more complex issues.”

Technology architects from IBM’s software divisions regularly meet in council with strategist Sabbah and colleagues. They review standards, touchpoints between software components, as well as the company’s available software assets. Out of this comes cross-group software like Workplace.

“I’m the combiner,” said Sabbah matter-of-factly.

The new approach to architecture arises out of the crucible of the WebSphere experience, not to mention the parade of Smalltalk and other tools that led up to that. Swainson and others agree that Sabbah and his software councils made it possible.

“Danny [Sabbah], our CTO and I had the experience of building four generations of application development tools over 20 years. We learned that you could not keep building and rebuilding stacks of infrastructure. That was maybe OK with a small bus and single product,” Swainson said. “We are doing with middleware what we have told clients to do with applications for many years.”

To decompose those chunks, members of the Software Group must work together exceedingly well. Making that happen falls to Sabbah, who presides over a security council of sorts that has been set up to examine how the groups can utilize technologies not built by their development teams. Ultimately, the group decides who does what and how the development budget is calibrated.

“There is a lot of collaboration between the different CTOs,” said Devlin, who is new to the team. “The Software Group has a board ... with fellows ... and they work on specific issues that might cross the different brands.” This could be as grand as model-driven development, or as “mundane as common error-logging,” he said.

Hail, Atlantic!
Any company’s prospects are based on its ability to execute. How Rational’s Atlantic tools rollout occurs in the months to come will be another test of IBM’s ability to execute. The new suite will more closely link project management, test, analysis, architecture and development using the Eclipse framework to do so.

To date, Rational’s move to the IBM camp has not upset the tools market. But, said Carl Zetie, analyst at Forrester Research, “There’s no question that the acquisition of Rational made other vendors sit up and take notice.”

For now, Rational activity has been focused on supporting and incorporating WebSphere runtimes and tools. Rational software is being sold into existing IBM accounts.

“The concept of tool suites is now being brought into all of IBM’s customers, and so best-of-breed solutions will be even further questioned,” noted analyst Liz Barnett, also at Forrester.

The Rational purchase, in the light of the software downturn, paid off for both sides, viewers suggest.

“Rational was already the leading vendor for the software development life cycle, and bringing it under IBM protected it from the worst impact of the tools market volatility of the last few years,” said Forrester’s Zetie. “Also, it has made IBM the master of its own fate in terms of tools support for its other initiatives -- such as On-Demand computing. It’s tempting to attribute the ongoing consolidation in the dev tools market to the Rational purchase, but in truth that seems to be a constant of the market.”

The Rational-WebSphere tool rebranding will no doubt experience the same growing pains of earlier WebSphere branding efforts that saw “WebSphere” suddenly come to stand for all things in IBM middleware.

“We still need to see what are today the WebSphere-branded app development tools integrated -- in technical, organizational and marketing terms -- into the Rational brand,” said Zetie.

“Hopefully, that will happen in the Atlantic timeframe,” he added, as all the development tools converge on Eclipse underpinnings.

(subhead)WebSphere changes everything IBM’s Mills first initiated plans for significant change back in 1999, and those plans were forced to evolve regularly in the more mature world of corporate IT. Middleware has been at the center of planning since then. Early on, the infant WebSphere line was asked to carry a lot of weight for the group. Diverse products such as Component Broker and MQ, competitors claimed, were being arbitrarily placed in the same box and stamped with the WebSphere brand. Integration of the expanding MQSeries line and the use of the technology in a variety of IBM software products became the focal point of the group.

IBM went at the integration challenge full bore, and learned as it moved forward. It did not take a genius to see that a consistent approach to solving IBM’s internal integration problems could map to the similar problems of the firm’s customers.

Many parts of the far-flung IBM software empire have been brought into the WebSphere world. Just as an example, Tivoli replaced its CORBA with WebSphere, and its messaging mode with WebSphere MQ. “Tivoli used to have only a CORBA framework, but now about 80% sits on top of WebSphere,” said Robert LeBlanc, general manager of the IBM systems management operation. “We’re working overtime to be completely off CORBA by the end of 2005, if not sooner.”

Meanwhile, Lotus developers are being weaned off LotusScript. They are offered two paths to Java development: one full-fledged WebSphere Studio style, the other using an easier more scripter-friendly Java built around JavaServer Faces. The Domino server makes way for WebSphere, too. A common, standards-based infrastructure has been a driver.

The drive, under Mills’ urging, to reuse components has been a steady one -- and his lieutenants have heard the call. The first results appeared as WebSphere matured. “It started with WebSphere beginning in 1999,” said the firm’s Swainson. “Now we’re seeing the same thing in other products, for example Lotus Workplace, and we’re doing the same thing with Tivoli.”

Critics rightfully contended that IBM was confusing the high-tech world by spreading the WebSphere brand far beyond its roots in the early days. But the payoff did come. Were MQ and CORBA brokers and the J2EE application server truly connected enough to carry the same moniker? “No one gets the granularity right on day one,” responded Swainson. The company is still at work, he suggested, on effectively decomposing some large-grained chunks of its software portfolio into finer-grained chunks.

Standard transmission
The company that once wedded itself to proprietary systems from the System/36 and System/38 minicomputer to the MVS-based mainframe has become a champion of industry standards with a vengeance. “Standards are embedded in the IBM company culture,” Mills said. “We’ve found that the customer loves standards, so we’re aligned to the customer much better.

“We’re not a passive participant; we’re actively involved in the creation of standards,” Mills said. Just last month, IBM turned the Cloudscape Java database technology over to the open-source Apache Software Foundation.

Mills contends that IBM is on the forefront of a standards revolution as “most software companies are still in the ‘look in the rear view mirror’ mode. They still look at the software business as it was years ago when the strategy was to take the lead with proprietary [technology] and then own the market. Our view is that we need the market to get bigger, and we want to see it grow with a more platform-independent ecosystem.”

Please see the following related story: “Microsoft and IBM preparing for battle ” by Gary Barnett