IBMs Palmisano to Partners: Future Is On Demand

By Darryl K. Taft  |  Posted 2004-03-02

IBMs Palmisano to Partners: Future Is On Demand

LAS VEGAS—IBMs oft-misunderstood on-demand strategy, though still evolving, lies at the heart of the companys message to customers, partners and suppliers. It was to IBMs partners that the companys leader attempted to shed light on the subject here Monday.

IBM Chairman and CEO Sam Palmisano opened the IBM PartnerWorld 2004 conference with an extension of gratitude to the companys 5,400 business partners in attendance for helping to generate more than $29 billion in revenue last year, about a third of IBMs overall revenue.

In addition, Palmisano, who laid out IBMs vision for on-demand computing in October 2002, shed a little more light on the subject for the companys partners.

IBMs future growth "is about innovating, its about on demand," he said. "What we mean by on demand is a business model, supporting technology to make that all come together and work, and about giving the customer more flexibility."

Palmisano said on demand is about end-to-end integration and about horizontally integrating disparate silos of information.

In addition, he said, "we think IBM is better positioned to lead than any other company in this space. We are the No. 1 company in the enterprise. Two-thirds of the money is spent in the enterprise. The enterprise moves faster than other segments, the returns are better, and it requires more innovation."

So to receive the advantages of IBMs on-demand vision, "the most important thing is you have to commit," Palmisano said. "You have to commit to our point of view. You have to commit to our view of open standards."

Palmisano said the progress he expects to see this year is to take the revenue generated from business partners to well beyond the $29 billion of 2003.

Next page: Improving economic conditions.

Economic Climate

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 standards—in 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.


Although IBM is committed to standards in the Java and Web services spaces, "the most excitement is around Linux. Its the fastest growing server operating system in the world," he said.

Palmisano mentioned the Blue Jeans project, which links 10,000 systems in a grid environment, and an internal IBM grid system where 20,000 IBM employees are offering the idle capacity on their machines to help research small pox vaccines.

In addition, Palmisano announced the IBM Human Capital Alliance, which will include $35 million to train people for future jobs in the industry.

Michael Borman, IBMs general manager of Global Business partners, said IBM has captured 35 percent of the blade market and business partners helped the company generate $500 million in Linux sales last year "and we expect to double that to over $1 billion this year."

And by the end of this month, IBM will have more than 50 Express offerings. Express offerings are versions of IBM products focused on the SMB market.

"We are enhancing our business partner charter," including the companys commitment to its partners, Borman said.

"Our competitors dont want us to succeed," Borman said. "Scott McNealy used to snicker at out technology. Now he says it comes down to them and IBM. Hewlett-Packard says it comes down to them and IBM. And while I continue to add security patches to my PC every week, Bill Gates says it comes down to Microsoft and IBM. Hes right."

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