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IBM realigns software unit

IBM Corp. disclosed last week plans to reorganize its $13.1 billion software business. The new strategy shifts the focus of the company's sales, marketing and development efforts away from its five product brands to an approach that emphasizes cross-brand application packages targeted at a dozen vertical industry categories.

IBM will divide its software group into 12 industry-specific segments, according to a company spokesman, including retail, manufacturing, health care, financial services and others. The Armonk, N.Y.-based industry giant is expected to invest hundreds of millions of dollars in the new initiative.

Although Big Blue is characterizing this new vertical-industry push as its most significant strategic shift since the company abandoned the application business in 1999, IBM executives have also hastened to emphasize that it is not a radical change.

''This is the continuation of an evolutionary path that we have been on for some time,'' Buell Duncan, general manager of ISV and developer relations at IBM, told eADT. ''The market has moved to embrace more integrated solutions and we're moving with it, taking our software sales organization more toward this solution focus.''

In fact, IBM actually began targeting verticals earlier this year with enterprise integration packages built around its WebSphere application server. The company has also been using its ''ISV Advantage'' program, which it launched in April, to support the shift. According to Robert M. Gaura, manager of IBM's Solution Partnership Center in San Mateo, Calif., the program is designed to provide technical and marketing support for ISVs specializing in mid-market customers. IBM announced in October that it would expand the program in an attempt to attract ISVs serving small- and medium-sized businesses in vertical markets.

The role of ISV developers, and IBM's relations with them, will be a key component in the new software strategy shift, the firm's Duncan said. ''It's about building an ecosystem of strong partners,'' he said. To date, the ISV Advantage program has signed 125 firms, for which IBM will provide technical support, as well as co-marketing and ''go-to-market'' support. Duncan expects that number to grow next year.

The San Mateo center, which is one of 19 centers worldwide, provides resources for 300-plus ISVs every year, the firm's Gaura said. Among those vendors is Evant, a San Francisco-based merchandise planning and demand management software provider. Evant used IBM's Solution Partnership Center last year to perform a proof of concept for the Staples office-supply retail chain, which led to a major contract.

Jack Harbaugh, VP of marketing and business development at Evant, sees the shift in IBM's software strategy as a reaction to demand in the marketplace.

''In part, this is a recognition that we are dealing with a much more sophisticated, much more knowledgeable group of people buying and using technology these days,'' he said. ''The industry has been moving away from traditional vendor-customer types of relationships with software and technology providers toward building strategic business partnerships. Industry verticals want to deal with a partner that understands their business. I think IBM's decision to shift toward a focus on verticals helps us as a vendor because we will be partnered with other ISVs with offerings that are complementary to what we do.''

N. Nobby Akiha, VP of marketing at Actuate Corp., a provider of scalable business intelligence applications, and another ISV Advantage partner, agrees. ''The move makes sense,'' he said. ''In this day and age, customers are not interested in off-the-shelf solutions. I think being more focused on industry-specific needs will be very helpful. We're as curious as everybody else about what the specifics of the announcement are in terms of how it affects the technology stack, but we believe IBM is on the right track.''

The wheels on IBM's new strategy are expected to begin turning officially next month with new training programs for IBM sales personnel and new business development activities. The company wants more than half of its 13,000 worldwide sales reps to begin focusing on industry-specific product offerings, the firm's Duncan said. ''As we begin to get our teams aligned by industry,' he said, 'we believe that we'll be adding real customer value.''

The entire strategy will unfold throughout the coming year, Duncan noted, and will ultimately touch every part of IBM's Software Group. The company plans to launch a number of new industry-specific products next year, he added, including 12 new middleware offerings for such industries as insurance, banking, financial services and automotive, which will be unveiled in January.

IBM's Software Group posted revenue of $13.1 billion in 2002, and accounted for just over $10 billion in the three quarters of this year. The division's product offerings include five 'software portfolios:' DB2, its venerable database; WebSphere, its application server platform and integration software; Lotus, which handles Web-based collaboration and information management; Tivoli, which manages networks; and its Rational development tools.

''These are powerful and successful brands in the marketplace,'' Duncan said. ''And they're not going away. But as we take the focus off these brands and build new products with a solution focus, industry flavor and point of view -- and as we connected those products to a sales organization that is aligned in the field and connected to strong partnerships committed to open strategies -- we believe that we will be responding to what the marketplace is now demanding.''

About the Author

John K. Waters is a freelance writer based in Silicon Valley. He can be reached at john@watersworks.com.

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