IBM, BEA spar over products and partners

An IBM-funded report entitled "IBM Business Partner Profitability", produced earlier this year, has elicited a war of words between IBM and BEA Systems.

According to IBM, the report stresses how beneficial it is to be an IBM business partner. The report was produced by Reality Research & Consulting, which is now known as RoperNOP.

BEA Systems, which is an archrival of IBM in the Java application server space, offers a different perspective on the report. IBM's own report, BEA said, shows how costly it is to deploy IBM software when additional required services are factored in.

Specifically, the report shows that IBM business partners sell US$11.60 of related services for every $1 of IBM middleware sold. Middleware includes products such as the WebSphere application server and MQSeries middleware, DB2 database, Tivoli management software, and Lotus groupware. The report also said that for every $1 a customer spends on IBM middleware, an additional $21 is spent by that customer on related software, hardware, and services combined.

Although BEA, which initially provided the report, is closed for the holiday week and did not have an executive available, a company representative released the following statement this week: "Big Blue's approach just contrasts with much of what the software industry is about; the other ideological camp, if you will, believes that software should be designed to streamline and reduce customers' operational costs, not to fatten vendors' consulting divisions."

The time and complexity of integrating the disparate components of IBM's integration products can be a significant factor in associated service costs, according to a recent BEA press release pertaining to the report. BEA, on the other hand, offers a unified, simplified software platform that features a common development model and code base, the company said.

But IBM officials dismissed BEA's criticism, emphasizing the report demonstrated the importance of IBM partners, the third-party companies that sell IBM products and related services.

"We're 100 percent dependent upon partners to deliver applications," said Mark Hanney, vice president of ISV Alliances, IBM Developer Relations. The selling of software involves offering entire solutions, not just individual applications, Hanney stressed. Some of the residual software sold as part of IBM middleware projects can be from other companies, such as SAP AG or Siebel Systems, he said.

IBM, he added, offers a slew of products in categories BEA does not even have in its arsenal, such as a database and network and security management software.

"We are the easiest to deploy and manage because [IBM software] is part of an integrated solution, not like the BEA WebLogic Server," application server, Hanney said.

"What we're seeing going on right now is customers are moving to e-business adoption." Hanney said. "What we're finding is tremendous demand in the marketplace for our technology."

"Customers don't buy a Web application server by itself; they buy an integrated offering," Hanney added.

IBM officials stress that BEA itself earns nearly half of its revenues from services. According to BEA's figures for 2002, roughly 39 percent of its revenues came from services, with the rest coming from software license fees.

An industry analyst concurred that IBM software can be expensive. "[IBM's] software requires basically a lot of customization and they have kind of a vested interest in keeping that because that's what keeps you in business," said Shawn Willett, principal analyst at Current Analysis.

However, IBM has made great strides in the past year to provide more pre-built functionality and templates, he said. And it is unclear how much services IBM products require when compared to BEA, Willett added.

Customers should take the Reality Research report with a grain of salt and presume that costs vary with each project, Willett advised.

The report was culled from 514 quantitative interviews with premier and advanced IBM partners in North America, Europe, and Latin America.

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