It's Official: IBM is Getting Out of the Application Software Business

About three years ago, IBM announced that it would be moving most of its sales to its business partner network, effectively taking itself out of the direct sales business to all except its largest customers. Now, IBM is uncoupling itself from the applications software business, opting to partner and offer best-of-breed solutions from ISVs in various disciplines. "The developers and ISVs will be our primary way to propose application software," says Bob Timpson, general manager, solution developer marketing with IBM. "We will still have some IBM application software, but generally in areas where we have customer commitments, or very strong skills or market position, such as our check-processing software, retail systems, airline high-performance systems, and others."

IBM will offer software through strategic alliances with select ISVs to jointly sell and market end-to-end solutions. IBM intends to be picky about what it offers. "We want existing companies that have a leading reputation and momentum and function and technology in their industry and are recognized as such," says Timpson. "We're not so much interested in people who have a dream or a vision and think maybe in two years they'll have a product. We're looking for people who are leaders in their marketplace in their segment today." In addition, software partners need to be committed to promoting IBM platforms.

As an example, IBM cited its recent global strategic alliance to market and integrate Siebel Systems' multichannel customer relationship management (CRM) software application. In turn, Siebel plans to roll out CRM packages for AS/400s and other IBM systems. Siebel Systems "built much success without IBM, but now chooses to go with IBM to grow to the next level," says Timpson.

"This is a watershed software in the IT industry," says Thomas Siebel, chairman and CEO for Siebel Systems. "The Internet is the single major factor that is fueling our growth, the growth of the CRM market, and it's fueling the e-business phenomenon. Historically, this is something on the same order as gunpowder and movable type. It's not only opened a new distribution channel, but it's changed customer expectations--they demand 24 x 7 access to products and services. They're not looking for mass marketing, they're looking for mass customization." Siebel will focus its development efforts on DB2 and expects "hundreds of millions of dollars in sales" for both companies in the first year. Currently, about 4,700 IBM field personnel are being trained to implement Siebel Systems.

Another beneficiary of IBM's shift in sales paradigm in the AS/400 world is MP Associates (Mt. Kisco, N.Y.), developer of SafeNet/400, an AS/400 software security application. "MP Associates may seem like a small developer, but we're really a big player in our space, AS/400 network security," says Malcolm Jones, VP of development for MP. "We already receive tremendous support from IBM, and our business will skyrocket with IBM actively helping us market our solutions." Jones reports that IBM's marketing has expanded MP's customer base by 35 percent over the past year. "We don't have a huge sales force and that is exactly what IBM brings to the table. The IBM global marketing sales force will take MP Associates with them wherever they go."

Selected ISVs will gain access to new customers and revenue opportunities through IBM's extensive marketing, sales and solutions resources. At the same time, ISVs will commit to increased use of IBM's leading middleware, server platforms and services. The worldwide market for application development will grow from nearly $72 billion this year to about $132 billion by 2003, according to Dataquest (San Jose, Calif.), making the revenue opportunity of today's announcement for both ISVs and IBM substantial.

"Five years ago IBM was quite a different company," says Timpson. "We were primarily a hardware products company and we ran those divisions as if they were separate companies. We also had a 'not-invented-here' syndrome. We didn't do enough to create partnerships. Today we are more integrated in our go to market--focusing on growing the total market with our partners. We're starting alliances where our strengths complement those of other companies, even companies that we might otherwise compete with."