Five things I learned at IBM’s Software Group Industry Analyst Meeting

Every year at about this time I attend IBM Software Group IT Industry Analyst meeting. This meeting is attended by about 90 industry analysts and about three times that number of IBM software group leaders, managers, and support staff. It is quite the event! While I can’t possibly talk about everything I am hearing, but I will give you an overview of the events and some of the highlights.

Since I have been traveling to a lot of analyst conferences lately, I can compare the approach of different market leaders. Next week, for example, I will be at EMC’s analyst meeting and in early December I will attend SAP’s analyst event.

But I digress. Here is what I came away thinking about IBM and its software strategy. One of my first thoughts is to compare Microsoft’s SOA/BPM event the other week to IBM’s. One of the big differences is that while Microsoft is announcing new long term initiatives (Oslo) for SOA, IBM is executing on a long term plan that has been in the works for more than five years. I think the best way to understand IBM’s software DNA is to look at the perspective of its leader.

I start with an observation that is actually not new for me. Steve Mills, Senior Vice President and General Manager of the Software Group has been the force behind herding the multiple business areas within the software group to have a common set of underlying services. While this may make perfect sense, it not an easy achievement for a company with thousands of software offerings across hundreds of different business units. As an example, when I first met Steve he was grappling with a few hundred different data stores under hundreds of different products. Somehow he managed to get all of these groups to use DB2 as their underlying database engine. But that was just the start. Steve’s next big leap was to move out of the packaged software market and into the middleware and horizontal software market.

 

 

 

 

I thought Steve’s remarks were quite insightful: In essence, Mills pointed out that IBM’s focus with its horizontal software approach is on what he calls industry frameworks. With this approach he believes that IBM is armed with the right stuff to focus on what he calls “customer business outcomes.”

Rather than packaged software these frameworks are a combination of best practices and business services. For example, in the financial services industry these services would include financial services for payments platforms, high performance event processing, and large scale data mining and analytics. Therefore, the overarching strategy for the software business is to provide the building blocks that apply to business requirements across business domains.

Mills contents that the real benefit that customers are looking for is to gaining operational efficient and innovative business performance from this horizontal. He contends that the greatest benefit from a growth and cost containment basis comes from a focus on harmonizing business practices across the organization. Simply automating and re-automating vertical slides such as customer relationship systems, booking keeping, inventory, and the like not where the opportunity is. Could this be a swipe at companies like Oracle and SAP?

 

Like Microsoft, IBM is moving its focus to process and models-based approaches but with a horizontal flavor. Mills believes that transactions, messaging, information integration, management of an increasingly virtualized enviornment, data management, and collaboration are at the heart of the requirements to make this vision a reality. This is where IBM software is putting its money and its bets.

So, here are the five things I learned from this meeting (I probably learned more but I know that people who read blogs have a short attention span…):

1. IBM is focused horizonally and will not get into the packaged software market. The exception will be software packages that focuses on more horizontal requirements.

2. IBM is reinventing Lotus into a collaboration platform. There are many exciting initiatives unfolding in Lotus that focus on a true distributed platform. I expect to see some important Software as a Service initiatives come out of the new Lotus. I would like to see IBM move faster into Software as a Service.

3. Information Management is an increasingly strong part of the IBM platform that transcends the database. IBM is doing a good job at integrating a large number of acquisitions into a substantial SOA based information platform.

4. IBM is doing SOA well. Clearly, the investment in SOA is paying off for IBM. It has more than 5700 SOA engagements under its belt. It is now able to leverage its expertise across key verticals to present a sound strategy to customers.

 

5. Now, I don’t want you to think that everything is perfect at IBM. There are still areas of concern. For example, the Tivoli organization has plenty of work to do to explain its portfolio to the market and give customers better techniques to get started without getting indigestion . Like other parts of IBM software, it is, in essence a software company in its own right with hundreds of products that don’t always work together as they should. Likewise, IBM Websphere is a huge set of technologies — some better integrated that others. Sometimes customers get overwhelmed with the portfolio.

Trying to reduce IBM software strategy to under 1,000 words is a task few humans should undertake (without a stiff drink of something). I have left out a lot — and there is plenty to say. For example, I haven’t talked at all about the herculean task that Danny Sabbah (I have added a link to Amy Wohl’s blog. She has a good interview with Danny from the same meeting) has taken on to reinvigorate Rational. (Yes, he is making progress. The direction is well conceived — it will just take some time). I also have not talked about the important Express software platforms that are probably IBM’s best kept secret. There are a series of impressive product offerings designed for ease of installation and ease of use required by the mid-market. I always wonder why it is o.k. for big companies to have to do things the hard way (but that’s just me…).

I guess this means that I have to write more about IBM’s software strategy in future entries…

Dumb Spending Surveys!

On Friday I got a call from a journalist who had a copy of someone’s IT spending survey. He had noticed that SOA spending was number 11 on the list so his question to me was; “Does this mean that SOA is fading as a requirement for IT organizations?” When I asked him what the top ten were and he told me, I had to chuckle (I often chuckle to myself when I hear stuff like this).

On the list were things like updating existing software packages, updating networks, business intelligence, and integration projects. So, guess what? I took two things away from this profound study – first IT management is stuck in trying to fight fires and get things done based on the existing models – like upgrading that ERP system that runs the accounting function for the company and making sure that the bits flow through the pipes. Second, companies are looking at issues directly related to SOA – like integration and information management.

But most IT managers don’t really understand that SOA is an approach to things like integration and data management. They are still stuck in their morass of shoveling the coal. I am not saying that this is easy to change. It is hard and will take years to start thinking differently about software and packaged applications and integration. So, asking questions like; “Is SOA a spending priority?” without explaining what that is and how it impacts things like integration is sort of dumb…if you ask me.

 

Top Ten Predictions for 2005

While 2004 started out with a whimper for the technology market, it ended with a sense that the momentum that had been missing from the market was finally beginning to take hold. Hurwitz & Associates predicts that the coming year will offer some interesting opportunities as well as challenges. Here are our top ten predictions:

1. Emerging Technologies

Leveraging emerging technologies in innovative ways to transform business will be the key driver in 2005. While many organizations are able to provide a predictable payback from technology acquisition with relative ease, the bar is being raised. The insightful companies are looking for technology to become a core competitive asset. For many industries technology innovation has the potential to transform business practice. We expect that this focus on technology as the foundation for business transformation will become the norm – not the exception. Traditional ROI methodologies will begin to be viewed as outdated. We expect the buying pattern to move away from cost saving technology purchase towards technology that offers business opportunity.

2. Open Source

While the Open Source market will continue to expand at a rapid rate some customers will begin to experience problems because of poor, undocumented implementations executed by inexperienced contractors. Customers will begin to learn the hard way that all open source is not the same. Companies that provide verification and certification of open source offerings will gain major momentum in the market. More software companies will continue to try to regain market momentum by putting their crown jewels in the open source arena. We predict that many of these efforts will be viewed skeptically and will not be commercially successful.

3. Data Quality

Quality in general will become a massive issue in 2005. This crisis will extend both to data quality and software quality in general. Data Quality, traditionally viewed as a back office function will begin to emerge as a major crisis in organizations. Studies are showing that few managers have confidence in the quality of their organization’s data. With tough regulations (Sarbanes Oxley, etc.) bearing down on companies, the quality of data becomes a front office issue. We anticipate that predictable data quality will become a battle cry for many CIOs and their bosses in the coming months. As software becomes the personification of the company, software quality moves form the isolated Q&A department.

4. Integration

How organizations are able to manage their information across departments and across organizational boundaries will be one of the hottest markets in 2005. While many software companies are beginning to leap into this emerging market, most will fail to gain critical mass. Customers will want to buy a well integrated package from a highly trusted source. Therefore, we expect to see many more acquisitions in this market. Those weaker players who are not acquired will go out of business.

5. IT Security

Security is moving from an applications play to an infrastructure play. Today there are thousands of small security companies focused on small pieces of a bigger puzzle. We expect that companies like IBM, CA, HP, Symantec, Novell, and BMC will position them for leadership by providing a consolidated set of offerings both at the infrastructure and the application level.

6. IT Security Innovation

Innovation in security will be driven by the need to anticipate problems before they materialize rather than having to react to threats – a move to real-time and away from reactive security. We anticipate the real action in startups will be in this area.

7. Linux

The Linux operating system will continue to gain significant market share at the expense of traditional Unix and Microsoft platforms. Innovative emerging software vendors are increasingly selecting Linux as their platform in order to compete with larger, more established players. The net effect will be a renaissance in innovative applications that do not need the same funding to approach the market. This will have dramatic implications for the SMB market. The barriers to entry are indeed being broken.

8. Middleware

The definition of middleware will change in 2005. We anticipate that what had been viewed as industry specific packaged software will begin to be seen as corporate infrastructure and middleware. This has the potential to change the balance of power in the market. Oracle’s acquisition of PeopleSoft will start an avalanche of acquisitions by unexpected players who have not been in the packaged software market.

9. Software As A Service

This is the year that software as a service will become the norm. Increasingly, we are seeing customers accept that software can and should be bought as a service rather than in a perpetual license mode. This model will change the dynamics of software: it will be much easier for companies to walk away from their vendor if they become dissatisfied.

10. Software License Management

Being able to more easily manage software licenses will become a major market factor in 2005. Until now, it has been difficult for large organizations to know what software is installed on desktops and laptops throughout their organization. Activity will be driven by a combination of increasingly tight budgets, regulatory demands for accuracy in software fees, as well as security concerns, Increasingly, companies are unwilling to pay for software licenses that users do not access and do not need.

Service as Software: The emerging model for integration?

IBM Business Consulting Services intends to transform its industry knowledge of industries into software. This move could have interesting implications for the future of service as software. I predict that we are about to embark on a major change in how companies implement and use packaged software. While we have seen the emergence of vertically packaged applications as a way for companies to move away from expensive custom programming efforts, they are still spending enormous amounts customizing these packages based on best practices within their company or industry. We are about to see the emergence of what I will call composite packaged software that will incorporate a variety of packages combined with best practices and industry knowledge.

Before I explain precisely where I think we are heading, let me provide some context. In the good old days, it was easy to answer the question: what is a packaged application? A packaged application is software designed to meet the needs of a specific horizontal function (accounting application, human resources application, to name a few obvious ones). Other packages are designed to meet the needs within a specific vertical industry (i.e., manufacturing supply chain software). While companies buy this type of software in droves there are problems. In most cases, companies are required to customize these packages in order to add their own unique business processes into the software. This customization usually accounts for most of the additional cost in implementing packaged software. The other huge cost is integrating that software with other horizontal and vertical packages. This is why we have seen implementation and consulting organizations continue to experience double digit growth over the past few years. Now, let’s put this in context with the cost and efficiency of implementation services. While clearly most organizations do not have the resources or capabilities to implement their own complex integrated packaged software environments, the implementation organizations are caught in a bind. Their expenses for hiring top notch staff are high. Utilization must be controlled or the companies suffer losses. To be profitable, implementation organizations must find ways to minimize their costs.

Given this scenario, I predict that we will see a dramatic change in the systems integration market. These organizations will begin to slowly codify their best practices knowledge into software modules that can be linked together with traditional packaged software offerings. This new business practice will both cut down on the most time intensive parts of the implementation process and will provide value to customers. What prevents this approach from being widely implemented now? Simply put, it is cultural issues in systems integration organizations. Most consulting organizations do not like to think that their knowledge can be put in a box like a commodity. However, this change is inevitable. One only needs to look at IBM’s Global Services Organization for a sneak preview. Global Services has started taking about its Business Component Models. In essence, Global Services has taken its best practices across the industries it focuses on and has created a vast number of best practices models. I expect as a next step you will see IBM turning these methods and approaches into software. Within the next three years, services as software no longer be an interesting idea – it will become the norm.