Big Blue's software business was once considered an industry laggard, anchored to its mainframe business.
Now IBM software is a $15 billion business, happy to use its market clout to influence standards and push open-source software.
But where does a $96 billion behemoth find rapid growth? For IBM, the answer lies in emerging markets around the world and among midsize companies. That's why winning over developers and application providers is a critical goal for IBM's software chief, Steve Mills. The senior vice president and group executive recently spoke with CNET News.com about the company's strategy and weighed in on what he thinks is wrong with the Java community process.
Mills: We've been vocal on how we think the Java Community Process can improve. It's a community process as long as Sun (Microsystems) agrees with what the community decides to do. Our position has been Java would be better served if it existed in a more democratic standards process, rather than one where one company had super-majority rights over everyone else.
I think the community process works well at times. And at other times it gets bogged in, "Well, what does Sun want?" It ceases to be less a community at that point. But we knew that going in, so there's nothing new there as far as this issue is concerned. We have the view that the market of Java licensees--and for that matter, even Sun--could be better served by an alternative approach. They incur a lot of expense today they would not have to incur if the process operated differently.
Mills: Well, no. That's silly. Standards can be sustained through standards bodies. If something is Java, it's certifiable to be Java and could be called Java only if it's certifiable as Java. Otherwise you're in violation of a trademark. That can be enforced through a standards-body structure, just as it can be by an individual (company), so I don't see that as a problem.
As open-source products move into more and more areas, will there be more pressure on your low-end Express line? Will you have to charge less for it down the road?
Mills: I'm already as cheap as anything out there. I have no problem with (open-source database company) MySQL, (open-source Java application server) JBoss or those things. I price at the same level for that level of use.
But those products are still worth your development investment?
Mills: The efficiency of development brought on by componentization and design means that for very nominal increments, I can take the basic structure and apply it at the lower end of the market and afford to put a very low price on it. And I hope that, frankly, some customers at the bottom will want more function over time.
The IBM software group has acquired many companies in the past few years--
Mills: We've bought 40 companies in ten years.
How do you choose which companies to acquire?
Mills: We're not buying out of the blue. It's not "Gee, that's interesting, maybe I should buy it" kind of thing. It's not spontaneous purchasing behavior at all. It's a well-thought out set of notions about things we think we need in our portfolio to meet customer requirements. The acquisitions have worked well as a technique, because we choose well and we spend a great deal of time crafting the integration plan with the company usually about a year.
How do you integrate these smaller companies into a large organization like IBM and not lose the employees?
Mills: Our view is you can make (a small company) part of a larger company and sustain the energy and the enthusiasm. Those two things are not contradictory of each other. But in order to do that, you got to have a creative way to make them feel part of IBM, while not losing the intrinsic value of what they were doing.
It's not about separation, it's not about names, it's not about brand--those are all externals. When you make (a small company) part of larger IBM--when your leverage it through enormous "go to market" structure, big software sales force, market reach, much wider portfolio, deep capability--(you) can you make that small acquisition and properly attach it to the rest of the software organization, and make it much bigger marketplace initiative.
When IBM acquired Lotus, the idea was to keep it independent.
Mills: That was 10 years ago. It was June of 1995. If you go back 10 years, we didn't have much experience in this, and there were lessons to be learned. Hindsight is always 20/20. Clearly there were aspects of Lotus, Tivoli and earlier acquisitions we did, if we did it again today, we'd do it differently.
Look at Rational (which IBM acquired in 2002) Rational is not a separator from IBM. The customer sees it as part of IBM. So they're dealing with IBM. The name can still be there, doesn't have to be in the way.
It's when your name becomes your reason for being. Instead of being what you do, you're about your name. I don't get up in the morning--I'm not like some of these athletes that talk about themselves, "Steve this" or "Steve that." I don't refer to myself in the third person. It's not about "Steve." It's about what I do.
You can't let companies get so egocentric, where it's all about sustaining this identity. It's really about the purpose you're there for--build a business, succeed, grow. That's where you want to anchor the motivation.
Do you expect the pace of acquisitions will stay the same?
Mills: We've been averaging about a half-dozen a year, most of them being small. So there's no reason we can't continue.
What's your take on the view that industry consolidation in software is going to speed up and that midsize companies are going to get squeezed?
Mills: Look, the bigger companies are going to get bigger. And there are going to be more companies. The amount of venture money is roughly comparable to the late 1990s, in terms of dollar amounts. There are lots of new companies being formed all the time Those that want to harp on consolidation are not looking at the whole spectrum.
Why the push to sign on business partners in emerging markets?
Mills: To grow our business, we need to go wider and deeper. The software vendor community is made up with thousands and thousands of independent software vendors. We're trying to do more business with more people. So it's widening and deepening our market reach.
You often hear about adoption of open-source software, such as Linux, in China. Is that your area of focus?
Mills: We are the largest software provider in China. Our revenues are greater than other companies selling software in China.
Who is the competition in emerging markets?
Mills: The usual suspects. All the multinationals.
Several times, IBM has said that the small and medium-size business is a "must-win" battle for the company. Is that where the growth in the industry is?
Mills: Oh, for sure. It's not that there isn't growth with larger businesses as well. Given our size and our aspirations, we have to extend into the midmarket.
There's a lot of business there that we're not getting to. And we're not going to get to it without a business partner network that's not bigger in size.
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