Industry shift to services fuels IBM spree

(continued from previous page)

Software provides better profit margins in comparison to IBM's hardware business and traditional services business. The company expects that software will contribute between 8 percent and 10 percent profit growth in the coming years, according to a presentation by Steve Mills, IBM's Software general manager and senior vice president.

With revenue from its mainframe-related software staying flat or falling, IBM is counting on higher growth rates from it branded middleware: Tivoli systems management, DB2 information management, WebSphere application infrastructure, Lotus collaboration and Rational development tools.

In IBM's model, acquisitions contribute 2 percent to 3 percent of revenue growth and fill out its branded middleware portfolio, which represents almost half of the software group's $15.8 billion yearly revenue.

Some IBM competitors contend that IBM's aggressive acquisition strategy is hiding its anemic level of organic revenue.

Alfred Chuang, CEO of middleware company BEA Systems, said IBM's "sustained growth is totally based on buying things." He took a dim view of the planned FileNet acquisition, adding that BEA had no interest in purchasing the company.

"Primarily, it is really being able to offer our customers solutions faster and in a more integrated fashion. Some will involve removing duplication from the market."

--Kristof Kloeckner, VP of software strategy, IBM

Analysts noted that IBM's attempt to purchase of FileNet differs from most IBM's technology-driven purchases in that there was so much product overlap. In this case, IBM is more motivated by deepening its reach to FileNet's customers so it can sell more services, hardware and software, said AMR Research analyst Jim Shepherd.

IBM's Kloeckner said IBM generally pursues technology when it buys other companies, but in a consolidating software industry, IBM is clearly one of the consolidators.

"Primarily, it is really being able to offer our customers solutions faster and in a more integrated fashion. Some will involve removing duplication from market," he said.

By contrast, Oracle CEO Larry Ellison proclaimed his company is a "survivor and consolidator " and purchased a large installed base of applications customers from PeopleSoft and others.

Microsoft also has picked up its pace of acquisitions, though it has generally stayed clear from larger ones. The purchase of application providers Great Plains Software and Navision have posed significant integration challenges.

Another important facet to IBM's software spending spree is the pace of commoditization in the software industry. Like highly similar hardware servers based on the same standards specifications, many software components, such as application servers and development tools, are highly similar and difficult to differentiate.

By purchasing software companies with advanced features, IBM is trying to stay a few steps ahead of the downward price pressure from forces such as open-source and hosted services, Kloeckner said.

IBM seeks to get involved in the more complicated customer engagements that tap into all of IBM's resources, including its software and business consulting experts, Kloeckner said.

"In some instances, customers are happy with good enough products," he said. "Much of the value is how you put together the pieces."

He added that the company is always eyeing emerging markets, such as the convergence of telecommunications and television, or "enterprise mashups" where workers combine business systems with outside Web services like mapping.

Staking out the toughest computing problems typically leads to multiyear engagements with large corporations, noted Forrester's Rymer.

On the other hand, IBM's products tend to be complicated because they are designed to address a wide range of requirements, he said. Microsoft, by contrast, focuses on making its products be approachable by a very high number of customers.

IBM's most recent large acquisitions pose some new challenges, analysts noted.

With a great deal of product overlap, IBM will have a hard time integrating its FileNet acquisition--if it isn't outbid by Oracle, research firm Gartner said.

And IBM's planned buy of MRO Software, which makes asset management software, would push IBM into what some analysts said is the applications area. IBM has taken pains to stay out of the packaged application business because it does not want to compete with potential partners that would build applications on IBM's infrastructure software.

Despite these hurdles, IBM continues to focus on the anticipated rise in SOA spending, which gives life to both its software and services business. In fact, IBM has established centers meant to reuse many of the custom software "assets" it develops in service engagements.

"They're trying to gain the high ground because there's a new market coming along," Rymer said. "And IBM is not ceding that market to Oracle and SAP. They will participate and will seek to capture that growth."

Cool

As an SOA designer, I think this has to be good. There are so many "emerging technologies" that it's impossible to keep track & do justice to all of them.

Bringing them under the IBM umbrella should make them more accessible & provide far more choice in SOA solutions design.

[DavyBoyWonder]

As an SOA engineer...

...you're only hoping that IBM buys you out and makes you rich.

[Captain_Spock]

Since "Services-oriented architecture....

... in this case is really not just a buzzword. In this context, it's an operational strategy,"; so said "Kloeckner, vice president of strategy and technology for the IBM Software group."; will the implementation on an instant messaging and collaboration strategy be part of the recommemdation to the Kerik Group which is likely to bid competitively for a services offering to be offered by the Guyana Government:

"Kerik's services could be funded through competitive procurement - IDB
Tuesday, August 22nd 2006"

<a class="jive-link-external" href="http://www.stabroeknews.com/index.pl/article_general_news?id=56502053" target="_newWindow">http://www.stabroeknews.com/index.pl/article_general_news?id=56502053</a>

So, is "the IBM internal development; and/as well as, "its aggressive partner programs" ready for these dynamic emerging global business opportunities! Just how the (SOA) competitive landscape will emerge is left to be seen! ;-)

[Captain_Spock]

"And IBM is not ceding that market to Oracle and SAP"...

... since it is known that IBM once lost out to SAP on a banking (J.P. MORGAN CHASE) deal in the past - just what will IBM do differently and strategically this time around not to cede "market to Oracle and SAP" as is now being stated!

[nanarita]

SAAS has security risks

As more companies move towards SAAS, I think we'll see a shift in online attacks towards this arena. I was just at a compliance and security lecture, where analysts pointed this out as the next big risk potential for stealing data and company information. We'll be able to soon add it to this list of incidents: <a class="jive-link-external" href="http://www.essentialsecurity.com/educationalfacts.htm" target="_newWindow">http://www.essentialsecurity.com/educationalfacts.htm</a>

[Broward Horne]

SOA Meme Upturned Two Years Ago

SOA has been in an upturn for two years. Here's my explanation for why, as well as the memegraph.

<a class="jive-link-external" href="http://www.realmeme.com/roller/page/realmeme?entry=soa_j2ee_revisited_in_more" target="_newWindow">http://www.realmeme.com/roller/page/realmeme?entry=soa_j2ee_revisited_in_more</a>