Palmisano also addressed the economic climate of the day. "Things are better and people are more optimistic," he said. "There are shifts in the economy, and on demand is so important. The macroeconomic conditions around the world are steadily improving." IBM is more confident this year, he said, because more of its clients are investing in growth areas."The SMB [small and midsize business] market is growing 6 to 7 percent," Palmisano said. "Growth is back on the agenda."But people are asking if they are agile enough. That is where on demand comes in, he said. "The most phenomenal shift, the biggest shift in 15 years, is that this industry is driven by the client, not the vendor," Palmisano said. "The client is forcing reintegration." And they are forcing reintegration because the schemes of the past generation failed, he said. "The client is forcing us to focus on solutions," he said. "They dont want to be the assembler of piece parts anymore." Another key shift is the shift to standards-based systems, Palmisano said. Here, too, customers are driving the shift to standardsin the areas of not only Linux, but also grid computing and Web services, Palmisano said. "The client is insisting upon simpler, stabilized applications, and we need to bring that to them," Palmisano said. On demand will be a feature relating to that, he said. The industrys record of "invent and project" has "had success but incredible failures"such as the cashless society, the paperless office, and the dot-com explosion and implosion. Meanwhile, IBM continues to spend between $5 billion and $6 billion on research and development each year, and for the 11th year in a row generated more patents than any other company in the industry, Palmisano said. On demand accounts for 17 percent of IBMs total application base, up from single digits only a few months ago. Meanwhile, IBM Research is working with IBM Business Consulting Services to create a project called Catalyst to quantify the value of on demand in customer environments. Palmisano said the SMB market is being left behind, but IBM is in the market to bring it standards-based solutions. Next page: Excitement builds around Linux.