Gerstner: IBM Banks on IT Infrastructure

IBM Corp. has a new mantra: infrastructure. The company is spending billions of dollars on Linux and data center development in an effort to position itself as the premier "e-business" infrastructure provider for companies, according to IBM Chairman and Chief Executive Officer Lou Gerstner. Now that the initial exuberance of bringing businesses into the Internet age has been dampened by sobering economic reality, corporate managers will turn to IT vendors with years of real-world experience to help them build an e-business infrastructure for the future, Gerstner said.

IBM plans to spend about $5 billion on open-source systems and "e-sourcing" infrastructure development -- an extension of outsourcing services -- over the next four years, in order to serve customers looking to build an industrial strength computing platform and asking for IT services on demand, Gerstner said.

Speaking here at the kickoff keynote speech at the eBusiness Conference and Expo, Gerstner said that businesses of all types have ridden a "wild current" over the last four years as they geared up to sell products over the Internet. But as companies realize that taking advantage of the Internet is more complicated than it first appeared, they are questioning the way that they have incorporated technology into their businesses over the last few years, he said.

"I suspect those of the you who aren't working inside IT ... and some those who are, are saying, 'Excuse me, is all of this just fool's gold?'" Gerstner said.

Gerstner predicted that companies selling proprietary operating systems -- he gave as examples Sun Microsystems Inc. and Microsoft Corp. -- will wane as more IT buyers look to incorporate open-source systems such as Linux into their core business processes.

Up to now, companies have focused on selling to buyers over the Internet, Gerstner said. But this is not enough, and companies will realize that they need to integrate all aspects of their business via the Internet -- from their supply chain all the way up to Web-enabling finished products, Gerstner said.

Dot-com companies focused only on selling products over the Net, believing they were creating a new business model, he said. "Instead businesses were being built on a centuries old business model -- lower prices," he noted. However, the dot-com companies did not have the infrastructure to back up their offerings, he said, adding: "So welcome back to earth."

Businesses will turn increasingly to open-source, standard software as they seek to connect to customers and in-house staff linking to information systems through a myriad of Web-enabled devices, from wireless handheld devices to PCs and even game consoles, Gerstner said. IBM intends to invest about US$1 billion in Linux-related development, he said. [See, "IBM to Invest Almost $1B in Linux Development," Dec. 12.]IBM also will spend about US$4 billion over the next four years to create an additional 50 more e-business hosting centers, on top of the company's current 175 data centers -- of which 25 are e-business hosting centers, Gerstner said. E-business hosting, a key to "e-sourcing," goes beyond outsourcing of data and Web hosting, Gerstner said. E-sourcing involves the ability to meet customers' requirements for "on-demand IT services," Gerstner said. This will involve, for example, real-time application load-balancing and management, he said.

"E-sourcing is a logical extension of outsourcing, capitalizing on the escalating requirements of e-business ... [it is] buying IT as a utility-like service over the Web," he said. E-sourcing will give rise to 20 or 30 "mega-customers" which will consume up to about 25 percent of IT vendors' output, and then resell it as services to smaller companies, Gerstner said.

Sun Chairman and Chief Executive Officer Scott McNealy has for years been making keynote speeches in which he has compared the ability to offer computing power over the Web to getting power from the electric utility grid. But Gerstner Tuesday took a shot at Sun, saying that the days of offering proprietary Unix systems are ending. Non-proprietary technologies such as XML (Extensible Markup Language), which users can integrate into core business processes, are what customers will be looking for, Gerstner said.

Not everyone in the audience agreed that IBM will grow at the expense of Sun and Microsoft, however.

"Sun and Microsoft will roll with the open-source movement, they're not going to go away," said Ed Giglio, a sales engineer for a New York-based data and Web hosting company he asked not to be named. "They'll adapt their products to open-source, and Linux will be another operating system, an important one, but Microsoft and Sun will be here for some time." Giglio's company is mainly a Microsoft Windows NT shop, he said.

One area where IBM does have an advantage, however, is in services, pointed out long-time IBM watcher Sam Albert, president of the Scarsdale, New York-based Sam Albert Associates consulting firm and a former IBM executive.

"Services is a US$30 billion business for IBM, and they've got about 143,000 people working in Global Services," he said. What's more, IBM is hedging bets on Linux; it is well-prepared to work with companies using a variety of operating systems and platforms, he said, noting that IBM has 3,000 NT programmers and 5,000 Java developers.

"What Gerstner gave today was a statement of IBM's future, based on its current main strength -- services," Albert said.