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.
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The tech world is all too familiar with Twitter's "fail whale" and have become accustomed to Gmail failures (which are inevitably chronicled on Twitter.) And while sometimes it's infrastructure (such as routers and switches) rather than software that fails, it often seems as if we too readily accept that software will inevitably breakdown.
Mark Donsky, director of product management at Coverity, commented recently about a recent static analysis of open-source projects performed on the Scan site that showed a 71.9 percent correlation between the number of lines of code and number of defects found.
This is of course, not an open-source problem but a general issue that occurs as more code is integrated into products. I've been told that Windows is developed with two quality assurance people to every engineer as the product has grown over the years.
Coverity is focused on software integrity and advocates static analysis early in the development cycle. While testing of all kinds, including static analysis are obviously good ideas, the tools and methods vary dramatically by engineering organization. The Software Engineering Institute (SEI) at Carnegie Mellon University and the Object Management Group (OMG) recently paired up to form a consortium to establish standards for software quality.
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If the first quarter was the apocalypse, then the second quarter offers a glimmer of hope for VC community. New data from Chubby Brain shows that with the "numbers tallied, Q2 2009 saw 61% more money flowing from venture capital investors to entrepreneurs over the prior quarter." Good news for all.
I'm part of the camp that believes a downturn is a great time to start a company and I suspect we'll see many more fundings in the second half of the year--especially as too many VCs chase too few deals.
Second quarter highlights:
- Deal values totaled $5.329 billion. This represents a nearly 61 percent increase over the $3.314 billion of investment tracked in the first quarter.
- Early stage investment in Seed and Series A rounds accounted for 35 percent of the number of deals.
- The health care sector saw the greatest level of funding, garnering 37 percent of investment dollars.
- Nine of the 10 most active venture firms in the quarter are based in Silicon Valley.
The heavy lean toward health care is the only surprise in the financings, but it makes sense in context of how long it takes for those types of products to be developed.
View the full report on Chubby Brain's website.
Follow me on Twitter @daveofdoom.
I had a great time talking to a group of Stanford kids yesterday as part of a VC quick-start program where teams compete for spaces in a summer program that gives them office space and a bit of guidance toward building a company that they can then pitch to VCs at the end of the summer. Sort of like an entrepreneurial boot camp.
Let me state that these kids (and man did I feel old) are smart. Book smart, socially affable and well aware of how you become an entrepreneur in the Valley. They also are smart enough to recognize that developing software is a different game than it was 10 or even 5 years ago.
Only one group was developing code that would be installed as opposed to delivered as a service. The "enterprise" team didn't have much of a choice as their product was more software infrastructure/plumbing than it was a service.
As I drove back to San Francisco I thought through why the enterprise is really pretty boring, even if it pays better than anything else. Note that all of these words are mine and that we didn't cover this too much in the discussion.
So why does the new generation eschew on-premise enterprise software?
Enterprise software is slow-moving -- It's been argued that innovation in legacy products occurs on the fringe. This is exemplified in open source, where developers scratch their own itch as well as in software as a service, where Salesforce and other companies found weaknesses in customer delivery.
Installers, maintenance and professional services -- Unless you have experience already with any of these things they are not interesting. I'm not sure they are interesting even if you have experience (they're not, I'm being nice). Every VC will tell you that "pro serv" is not a good business model.
Colleges (and grad schools) don't teach software history -- The only slightly negative thing I can say is that the kids weren't terribly well-versed in software history. Of course, as good Stanford folk they knew every VC and were obviously aware of big companies. But they really didn't care. No one coming out of school today is looking toward behemoths for new ideas or even technological breakthroughs. That said, the enterprise is where the money is.
Basking in the warm glow of VCs -- Ask a recent Stanford grad about venture capital and odds are they can rattle off three or four VCs who spoke at their classes. Ask them who wrote Unix or where it came from and you get blank stares. I suppose it all comes down to what you want to retain, and the Valley is constantly reinventing itself but I miss the days when Dennis Ritchie was a star.
Enterprise = old people -- Sitting in a room as mid-thirties guy with a bunch of young twenty-somethings, I felt old. And not because the group was updating their Facebook status (they weren't) but because they weren't carrying any of the enterprise baggage that so many of us are saddled with.
When you think enterprise software do you think high degree of innovation or cumbersome and expensive?
My discussion with the group was eye-opening and makes me think that the Valley and venture capital, while certainly due for a correction, will continue to churn out great new technologies. My only regret is not forcing them all to give me stock in their new ventures.
Follow me on Twitter @daveofdoom.
I was somewhat shocked by the stellar results Oracle recently reported, considering the sorry state of the economy. I even called an analyst friend to find out if maybe there was some house of cards ala Computer Associated that explained the consistent rise in revenue and margin. But I was reminded of two simple facts explaining why Oracle remains dominant:
- Applications drive database sales
- Oracle owns pretty much everything
Oracle's acquisition streak has given the company an enormous breadth of offerings (say what you will about quality of the software) and the attempt at offering it's own Linux variant gives it an OS that's passable if not meaningful. But, I don't know that owning the operating system is important to the growth of sales in applications or databases. (Note: Matt Asay wrote a very good post about why Ubuntu should be Oracle's Linux of choice.)
Oracle applications and databases have to run on an operating system, but the operating system doesn't necessarily drive software sales, or sell databases. The OS may be a point of influence, but doesn't drive the dollar values that you get from software.
Meanwhile, Oracle has amassed such a wealth of software that it can not only drive it's own database sales through upgrades and replacements (JD Edwards or Siebel running on DB2 seems unlikely) but it can up-sell databases to customers of BEA or any of the other myriad applications it now owns.
Add MySQL into the equation and Oracle can sell you a database pretty much anytime for any purpose, to support any application (which you can probably buy from them too.)
This leads into some questions regarding Cisco's strategy, based on the idea that hardware should sell applications, as well as IBM's strategy, where services have often sold software and hardware. The future is of course a mix of all of these strategies, but it's not clear that another company is as well positioned as Oracle.
While certainly not unstoppable, Oracle's execution has been very impressive, especially in a down economy.
Follow me on Twitter @daveofdoom.
Ever wonder what the sales guys at BigCos like IBM are thinking about? Seems that IBM has assembled "what it calls a Viper 500 program with IBM's account teams to replace Oracle in more than 600 accounts."
I do enjoy a slap-fight amongst software vendors..."I am actively hiring people to go kick their teeth in," said Mike Borman, IBM vice president, worldwide sales for the IBM Software Group in a wide ranging 90 minute interview earlier this week before the hostile Oracle bid for BEA.
Despite it sounding a little bit silly, this is actually a good idea. Where do you go for growth when you have a significant market footprint? You coordinate direct attacks on your competition. (I must note that Viper 500 sounds like someone has been reading too much Tom Clancy.)
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