IBM chief-to-be hails 'e-business era'

Making his first public appearance since being named CEO, Sam Palmisano on Wednesday said IBM Corp. will focus many of its technical and business initiatives around standards-based, open computing strategies as the primary way it helps usher users into the next major computing phase: building industrial strength e-businesses.

Addressing 3,000 or so attendees at its annual PartnerWorld conference here, Palmisano said users will need a new computing model to adequately accommodate this new phase, which will center around users being able to integrate their key hardware, software, and middleware products from desktop and handheld systems all the way up to the highest end servers.

"We are entering into the e-business era and that is going to be about end-to-end solutions, which will require a different computing model. It will be an integration play and not a pure desktop play," Palmisano said.

Besides continuing to support a range of open standards and technologies, such as Linux, the other pieces central to how IBM and its partners piece together integrated end-to-end solutions will be Project eLiza, the company's initiative to build a network of self-healing, self-managing servers, and its grid computing initiative.

"Project eLiza will only be a phase on the way to fully realizing grid computing, where you can establish an open environment that can deal with customers' most important problems. This doesn't mean going back to mainframes although we are pleased with our recent progress there," Palmisano said. Palmisano takes office on March 1.

IBM is no longer "hung up on its proprietary past," Palmisano said, and that the company's avid commitment to Linux and other leading open-source software clearly demonstrates how comfortable the company is in leading with an open software approach strategy.

Backing up his belief that the e-business computing phase is now well under way -- with the first two phases having been mainframe-based computing followed by the client-server model -- Palmisano said that in a recent survey of 33,000 users about 82 percent were somewhere in the cycle of transitioning over to a meaningful e-business computing model.

Many of these users, however, said the difficult part of this transition occurs when they get to the integration phase, when they need to seamlessly tie all of their key products together. This is something Palmisano believes IBM can do and has done better than its major competitors, particularly through its massive IBM Global Services organization, middleware line of products. and projects coming out of IBM Research.

"Many of our competitors are not doing so well as they move through this integration phase because they appear stuck in the last [client-server] computing phase, which had a focus on personal productivity," Palmisano said.

Although IBM's Global Services group has grown to be approximately US$35 billion organization with 150,000 employees, it still only represents about nine percent of the overall services market. Palmisano, who was headed that group a few years ago, has ambitions to grow that market share to 20 percent.

Making it clear that IBM will rely increasingly more on its partners to accomplish many of its goals, Palmisano said that last year partners were responsible for generating $29 billion of IBM's $86 billion in sales, a figure that is more than the combined revenues of both Sun and EMC.

Preaching to persuade partners to remain committed to IBM's long-term view of the new computing model, Palmisano said that partners figure to improve their profitability with IBM's strategy, particularly through the integration phase.

"As many of you have told me the last couple of days here, there is a struggle to achieve profitability, but as you move into the integration phase there are more opportunities for making profits. And you can't do this with a proprietary [technology] approach. It won't support the infrastructure of the future," he said.

Palmisano offered further evidence of what he believes confirms that IBM's services-oriented, software integration approach is the right one, by noting the market share gains made over major rivals such as Hewlett-Packard, Compaq, and Oracle, but especially the fact those competitors are now to some degree emulating IBM's strategy.

"About 15 months ago many of competitors said it was all about the economy, and there is some justification to that. But look at what has happened to their strategies since then. A company like HP now wants to be more of a services companies and combining that with their infrastructure," he said.

Palmisano took a shot at Sun Microsystems making Linux a strategic platform -- something IBM did three years ago, mentioning that Sun chairman Scott McNealy showed up at a recent Sun analyst conference wearing a Penguin costume.

"Now that is what I call a strategic shift," he said. "But when you think about what IBM has done the last few years, we don't need to make many changes because we got it right form the start," he said.

Palmisano also believes IBM is significantly ahead of Microsoft in terms of offering users a comprehensive set of technology and business solutions, noting that the software giant does not have the necessary middleware-based solutions in place to tie corporate users' major infrastructure pieces together and that will not be accomplished by an operating system alone like Windows.

Palmisano, however, did tip his hat to Dell, who he believes has made a serious attempt to grow its business outside of its traditional desktop market and out into storage and other infrastructure markets.

"Dell moving into things like routers and storage and wrapping services around them has a strong business model, one that we will all have to adjust to," he said.

IBM sees the market in three distinct segments, Palmisano said. The first comes under the heading of business insight, which constitutes 13 percent of the market opportunity, and is made up of mostly services and consulting services. The second segment is infrastructure, which represents 72 percent of the market opportunity.

The third is the technology segment made up of chips and other hardware components and represents 15 percent of the market opportunity. Palmisano said this last category is the toughest in which to be compete profitably.

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