Software: The Driving Force Behind IBM's Business Transformation

Though it ranks as the second largest software business in the industry, IBM Software Group (SWG) is not sitting around on its laurels. This profit-driving division of IBM has been on a growth path for a long time, investing both organically and through acquisitions to build one of the most powerful software portfolios in the industry.

Behemoth IBM is not going to sneak up on anybody, but the systems giant has almost stealthily doubled its software revenues in under a decade. The last time eWEEK took a good look at IBM, SWG revenues were around $8 billion to $10 billion several years ago—last year Big Blue's software revenue was $22 billion.

To remain competitive and drive new business opportunities in emerging and growth markets, IBM has been transforming its business with a keen focus on software and services. Indeed, over the last decade, IBM has driven a significant transformation of its business model as the company has shifted to higher value areas, improved efficiencies of its business and invested strategically for long-term opportunities.

At $22 billion in revenue last year, IBM SWG brought in more than 42 percent of IBM's profits. Indeed, IBM Senior Vice President and Group Executive Steve Mills, who runs IBM SWG, said the company's software profits have actually tripled in the last decade, driving more than $8 billion in profit in 2009.

This profit has enabled IBM to invest in new areas like Smarter Planet for the instrumentation and monitoring of physical assets, business analytics and data center transformation and cloud computing, Big Blue officials said.

IBM's software capabilities also have grown because the company has continually added to its base. Since 2000, IBM has acquired more than 100 companies—more than 60 companies in software alone, including Cognos, Filenet, Telelogic, Micromuse and MRO Software. In the past few months IBM acquired Guardium, a leader in data security software; Lombardi, which enables us to boost our business integration capabilities; and Initiate, a provider of data integrity software for the health care industry. And IBM is the industry's top middleware producer, according to Forrester Research.

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