Software, Interrupted

IBM's software business contributes $20 billion of IBM's revenue and 40 percent of its profits. Suffice to say, it's an important part of Big Blue's market strategy to ensure that the software division performs at or above expectations every year.

Steve Mills, senior vice president and group executive, joined IBM in 1974 and has helped shape the software business as its grown to more than 50,000 employees, including 25,000 software developers and 15,000 sales and technical support personnel in more than 150 countries. That total includes the products and personnel from the more than 50 companies IBM has acquired since 2000.

Steve Mills, SVP IBM software.

In 2009 alone, IBM acquired no fewer than five companies: Lombardi, a privately held provider of business process management (BPM) software, data discovery software firm Exeros, database security firm Guardium, security provider Ounce Labs, and analytics provider SPSS.

The company also launched a number of cloud-oriented products and services in 2009, including a new lab in Hong Kong, a Cloud Academy program designed to help educators and students pursue cloud-computing initiatives and better take advantage of collaboration technology in their studies; and a number of additions to the LotusLive hosted collaboration service.

In an exclusive interview with CNET News, Mills shared how the company is looking at the technology landscape in 2010 and beyond.

Question: Software strategy is obviously an important part of IBM's business model. How long of a time-to-market horizon does IBM look for with new software products?
Mills: We tend to look at product groupings and product families--customers don't use a single product. Enterprises are looking for complete solutions even if they don't buy them all at one time. That means that we're looking for leverage in software we create or acquire--how do the products complement each other and how can plan ahead for what customers need.

As you probably know, IBM is big on process (laughs). The software business is no different, and we have a method to how we develop markets: customer, volume, revenue, and profit. You have to set the baseline to figure out how the product fits into the marketplace, you learn this from talking to customers. Time to market and rapid iteration are important aspects that come into play in relation to the other components but you always learn more in the market from customers than in the lab.

When we look at how well a piece of software is doing, as well as its potential, we look at volume of customers, industries, installed base, etc., and what's the trajectory of the installation. Growth objectives are unique to each product, and you rise on a series of plateaus. You have to fill the gaps that inhibit the growth. And it's not always obvious. We pay a lot of attention to our customers and also the trends in the market.

How does cloud computing play into your technology focus areas?
Mills: Cloud computing is a transformative part of the Darwinian IT phenomenon. Many companies are not interested in operating their own infrastructure as they don't see it as a competitive advantage. In which case they want to get the job done at a lower cost. Businesses realize they can grow because of IT and they want to continue to use IT to keep things growing, but that doesn't mean they need to own and manage every piece of their infrastructure.

Companies like American Express, Salesforce.com, and ADP are great examples. We see those types of system designs and customer interactivity as common models. IBM has long offered managed business process services and supported other big enterprise services.

These offerings make logical sense, but they don't always solve every problem. The hybrid public/private model is very appealing to our customers and not dramatically different than using a hosting provider.

Not everyone will be comfortable with the cloud model--it's all part of a continuum. There will be Salesforce.com on one hand, and on the other customers that run everything behind the firewall. Success doesn't mean that corporations will push everything into the cloud but the inherent cost-benefits are there and more companies are interested. That's part of the evolution.

How do you look at open-source projects/products/companies?
Mills: The hybrid companies like Red Hat have interesting models for open source. They take all the code and put it together for you, but we tend to look at open source as building blocks for larger solutions. IBM ingests a lot of open-source code and we provide a huge amount of development and engineering expertise to the various projects that we support--like Linux and the Apache server.

We focus a lot of our energy on open standards and platforms. And if there are open source projects that we believe in we'll invest resources to support them.

(Credit: Activision)

In the last year, consumers spent more money on video games in Britain than on films, including both trips to movie theaters and films on DVD, new figures compiled for U.K.'s Daily Telegraph indicate.

In the 12 months leading up to the end of September, 1.73 billion British pounds (about $2.8 billion) were spent on video games, according to data-monitoring company GFK Chart-Track. The U.K. Film Council said 1 billion British pounds ($1.6 billion) were spent at the British box office during the same period, with an additional 198 million British pounds ($320 million) spent on films released on DVD and Blu-ray.

• U.K. video games: 1.73 billion pounds ($2.8 billion)
• U.K. film: 1.198 billion pounds ($1.93 billion)

This means that approximately 532 million pounds ($860 million) more was spent on video games in 2009, roughly 30 percent more than on films. And while 1.73 billion pounds is impressive, it's still well shy of the $20 billion predicted for U.S. game sales in 2009. In fact, the U.S. spent $2.7 billion on games in November 2009 alone.

Video games, by no means a niche in the U.K, or most other parts of the world, are obviously big business and these statistics clearly show that the growth in new forms of digital entertainment specifically available via a computer or game console is having a major impact on more traditional forms of entertainment.

Contributing to the success of gaming in the U.K. were price cuts to jump-start sales, as well as tie-ins to supermarkets, greatly expanding the potential number of buyers and targeting gamers at the check-out stand, according to The Daily Telegraph. Further, Amazon.co.uk reported that Call of Duty: Modern Warfare 2 was the No. 1 seller for 2009, beating out DVDs of "Harry Potter" and "Twilight."

The industry data compiled by GFK Chart-Track also shows that the number of games consoles being used in Britain nearly doubled in 2009 to 25 million which means there are enough consoles for nine out of every ten households in the country to have one.

According to the report, only television--including DVDs of television shows, along with the cost of the license and satellite subscriptions--and music are bigger forms of entertainment.

(Credit: eMarketer.com)

Data from a new report shows that the iPhone may finally have a true competitor with Android phone users' profile appearing very much alike that of iPhone users'.

According to eMarketer.com, the marketing intelligence firm comScore found that 37 percent of U.S. mobile users had heard of Android in November 2009, up from 22 percent in August, and "likely due to the Verizon Droid ad campaign." More interestingly, "17 percent of mobile users in the market for a new smartphone in the next three months planned to buy an Android phone compared with 20 percent who would pick up an iPhone."

The report also shows that usage patterns for Android and iPhone owners were very similar in terms of media consumption, Web browser, and application usage, but e-mail usage on Android devices oddly tracked behind that of other platforms. This is likely because of the immaturity of the e-mail application that ships with Android and not a change in use patterns.

This news obviously keeps the iPhone in the dominant position, but shows that other smartphones finally present a real challenge. It's notable because BlackBerry and iPhone users have always seemed worlds apart, whereas Android users seem to be using their devices at parity with the iPhone crowd.

The fact that the Droid runs on Verizon instead of AT&T no doubt helps with data usage, though only time will tell if Verizon can handle the traffic or if T-mobile can handle the pressure of a huge influx of new Google Nexus One phones running Android.

Organic Flash Memory

(Credit: University of Tokyo)

The University of Tokyo recently announced the development of "organic flash memory," a nonvolatile memory that has the same basic structure as a flash memory and is made with organic materials.

Flash memory is a compact form of storage that can be electrically erased and reprogrammed. To date, it's been primarily used in memory cards and USB flash drives, but during the past two years it has made its way to notebook SSD hard drives.

The memory developed at the University of Tokyo is physically flexible and can be used for large-area sensors, electronic paper and other large-area electronic devices if its memory retention time can be extended, beyond the current one-day limit. It also provides a glimpse of how computing devices could become more physically versatile depending on the situation and other components necessary to make the device work.

There are a broad range of places where non-linear, flexible technologies could make sense. Consider the possibility of wearable storage that conforms to a body shape for video capture, or the ability to use rounded objects as storage devices. This also opens the door for all kinds of practical and nefarious uses--monitoring tire pressure or capturing the data from someone's shoe to find out where they've been.

And while it will likely be a number of years before technology like this is ready for prime-time, it also shows tenets such as Moore's Law related to processors may be usurped by other functions such as the ability to be pliable. It also speaks to the fact that IT as industry needs to continue to push the boundaries on commonly accepted practices and invest in hardware innovation, not just in consumer-facing Web sites and social networks.

Flash has become a highly profitable niche for a number of players such as Sandisk, Toshiba, and Samsung with third quarter 2009 global sales rising 26 percent over the second quarter of 2009. Incidentally, electronics research firm iSuppli noted that the average selling price of NAND flash climbed 40 percent sequentially in the third quarter, double the second quarter's increase. Prices are expected to slip 2.9 percent sequentially in the fourth quarter, according to iSuppli estimates.

New data on the top 10 mobile phones puts Apple on top due to the sheer number of iPhone owners. But both Research In Motion and LG actually control more market share because they sell multiple, popular models.

Nielsen's data on the top 10 phones in use in the U.S. from January through October shows Apple with 4 percent market share, RIM with 6.3 percent, and LG with 6.4 percent. But the trio lead a very fragmented market. In fact, the top 10 phones account for just over 20 percent of the total devices in use.

With an estimated 271 million U.S. mobile subscribers at the end of 2008, accounting for about 88 percent of the U.S. population, even 1 percent market share is significant.

RIM BlackBerry devices and LG handsets--voluminous in offering compared with the singular iPhone also have the benefit of longer time on the market and of promotion by the carriers that don't have the iPhone. LG is the No. 3 handset maker behind Nokia and Samsung. RIM and Apple have nowhere the number of models offered by the top three handset makers, yet they enjoy a stronger market share.

The Nielsen data shows both the opportunity and the challenge of creating the next big thing in mobile devices. Just a few years ago, Motorola's Razr was the belle of the ball, and RIM was firmly fixed as an enterprise device. However, the convergence of voice, e-mail, and browsing, as well as new 3G networks, brought the smartphone to the forefront and helped push both RIM and Apple to the top.

All hope is not lost for currently less popular handset makers, as the market can very quickly change dramatically.

Indeed, there is a big challenge under way from Android-based phones such as the Droid that could thrust laggards such as Motorola back into the spotlight, provided that Google doesn't stomp all over the developer community that has been building up around the new mobile operating system.

And mobile phones are not just for those on the run. Nielsen's Convergence Audit (PDF), an annual survey on voice, video, and data products, "shows a rise in households who have 'cut the cord' by trading their traditional landlines for wireless cellular services and an increase in mobile media device usage among a diverse set of households."

In the second quarter, the report said, 21 percent of households were using wireless cellular service only--compared with 18 percent a year earlier. "This increase comes from...households who have dropped their landlines as well as from young adults that started new households with just a wireless phone service," the report said.

Odds are that these percentages will continue to climb as young mobile users reach adulthood and as adults look to their mobile devices to do more than just make calls.

With Java investments in the billions over the last dozen years, it's a safe bet that enterprise companies won't be replacing these systems any time soon. In fact, one could claim Java usage is growing in spite of best efforts to claim otherwise by aficionados of Ruby, PHP, Python, Groovy, Scala, and other dynamic languages.

Red Hat for example reports that its JBoss Java middleware is its fastest growing business. IBM remains heavily invested in its WebSphere Java middleware. And let's not forget Oracle, which not only has the Sun brand (and ergo Java) pending but last year added BEA to the fold.

Java application platforms have been so focused on scalability and efficiency of database-driven applications that they've often ignored what's evolved in the consumer Web: rich user environments, better interactivity, and a mixing of content and data, collaboration and social features--all with much more personal control and empowerment. Efforts like JavaFX have been interesting if not ready for prime time.

But Java is hardly irrelevant, and Benjamin Mestrallet, founder and CEO of eXo Platform, thinks he can change exactly the perception that Java can't be Web 2.0 hip. eXo, which just opened its first U.S. office, is hoping to remake Java from stodgy to socially aware by combining powerful REST-based common services with rich Web 2.0 apps to get the most out of so-called legacy Java apps.

eXo counts a number of very smart people with deep Java roots in their court to make this happen including: Bob Bickel, a founder of Bluestone Software, former head of HP Middleware and former JBoss head of strategy; Edwin Khodabakchian, founder of Collaxa and former VP of Product Management at Oracle; and Sacha Labourey, longtime JBoss CTO and former co-GM of Red Hat Middleware.

This past year we saw consumer brands embrace social-media programs for branding and product promotions in sophisticated ways that most tech companies haven't quite gotten to yet.

Much of the reason behind the tech lag is due to the breadth of the audience, but also because tech buyers have tended toward expressing their opinions to companies without being asked.

Mountain Dew recently unveiled the details of its year-long DEWmocracy 2 program, "an open communications platform that relies on the collective intelligence of loyal consumers to shape the direction of the brand and Mountain Dew innovation pipeline." In layman's terms this means it is looking to go beyond crowdsourcing and incorporate a huge variety of community marketing and branding efforts into a bigger strategy.

DEWmocracy 2 launched in July and is a 12-month, seven-stage campaign that will result in the production of a completely user-generated Mountain Dew beverage. This is not dissimilar to a program Vitaminwater ran on Facebook earlier this year to crowdsource ideas for new flavors. The main difference is that DEWmocracy is a sophisticated, fairly massive endeavor, encompassing online communities like Facebook, video submissions, Twitter, and a variety of ways to vote, allowing users to share their thoughts.

I put forth a number of questions about the program to Brett O'Brien, director of marketing, Mountain Dew, detailed below.

What stage of the program are you currently in?
We completed the advertising challenge, which is the sixth stage of DEWmocracy, on December 13. DEW fans voted for their favorite advertising submissions, choosing six finalists. The finalists will now create short pitch videos for the Flavor Nations, which will each select which ad creator they would like to work within 2010 to create ads that will run on national TV.

Has any one particular tool been most effective in your marketing efforts?
Several tools have been effective, but we're particularly impressed with the consumer response to our call for video submissions on 12seconds.tv. In total, more than 1,000 videos [were] created by consumers and posted on 12seconds.tv and other social-media outlets. That type of response, coupled with the quality of the video submissions, screams a high level of consumer engagement. Consumer video submissions also enabled DEW loyalists to share content with other DEW drinkers and introduce them to the program not through the voice of the brand, but through the enthusiasm of fellow DEW fans.

Research firm Nielsen has released its top advertising trends for 2010. Not surprisingly the leading trend is the ability to measure activity that merges online and offline purchasing behavior, addressing the fact that users have expanded options for how they consume content and how they interact with brands.

Nielsen data shows that "time spent on each of the three screens--TV, PC and mobile--is increasing. In particular, the consumption of video content is on the rise across all platforms."

Top advertising trends for 2010

1. Optimizing media convergence is a top priority
2. New models emerge to take advantage of smartphones
3. More cross-media ad campaigns surface
4. Commercialization of social networking hubs increase
5. More interesting and interactive online ads appear

The challenge with advertising mediums such as video (TV more so than online) is that they require users to not only be interested in the product but remember it when they are making a purchasing decision. This, of course, is why online advertising has proven to be such a lucrative model. Consumers, in theory, can be served an ad and then perform some kind of action, such as buying a product online.

Nielsen asserts that for consumer packaged goods, "purchasing decisions in 2010 will be affected by factors such as brand innovation, retailer assortment, proliferation of store brands, and healthy eating preferences." With the exception of healthy eating (maybe eco-friendly tech is the comparison?), the technology industry won't be dramatically different.

Large brands like Oracle, Hewlett-Packard, and Microsoft must continue to innovate (brand innovation), more start-ups will join the fray (retailer assortment), companies like Dell will offer more services to support their hardware business (proliferation of store brands) and maybe electric cars become the healthy eating of the tech world.

What remains to be seen is which advertising trends are the most efficient and cost-effective. Social networking has been largely aggregated onto a few major sites such as Facebook and MySpace, while other niche sites garner far less traffic (though potentially more per-user dollars.)

The biggest opportunity is to make people actually like seeing advertising. Despite all of the hype and success around ads, I've yet to meet someone who claims to just love Internet ads. We all accept ads as a part of our lives online, so there is certainly an opportunity for more interesting online ad formats.

IBM decided to close 2009 with a bang by acquiring Lombardi, a privately held provider of business process management (BPM) software. Big Blue racked up a number of acquisitions this year including: data discovery software firm Exeros, database security firm Guardium, security provider Ounce Labs, and analytics provider SPSS.

Lombardi marks IBM's 90th acquisition since 2003. That's a lot of companies to digest.

With Lombardi, IBM strengthens its presence in BPM by effectively capturing the customers it doesn't already have. IBM currently has more than 5,000 BPM customers in about 30 countries and growing.

According to Lombardi CEO Rod Favaron, the company has about 300 enterprise-level customers with a high percentage shared with IBM. Lombardi has a shockingly impressive customer list, including Allianz Group, Aflac, Barlays Global Investors, Dell, FETAC, Ford Motor, Hasbro, ING Direct, Intel, Maritz Travel, National, Bank of Canada, National Institute of Health, Safety-Kleen, T-Mobile, UCLH, and several governmental agencies.

It's generally been a quiet year for technology merger and acquisition deals with the 2009 value total for tech M&A activity reaching $142 billion, according to recent data from technology investment research firm The 451 Group. To provide context, the second quarter of 2008 alone saw $173 billion in tech M&A deals. The median deal size in 2009 was $40 million, contrasted with a median of $43 million in 2008 and $100 million in 2007.

From January to November 2009 there were only 31 technology transactions valued at $1 billion or more, and The 451 Group reports that all of the high-multiple deals took place in the second half of 2009, resulting in M&A spending running 50 percent higher than in the first two quarters. Notable deals include Dell's purchase of Perot Systems and Cisco Systems' pair of $3 billion acquisitions in October.