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IBM is piling up the partners — more than five dozen of them already this year — in its effort to increase profits from its booming services business.
Big Blue has signed alliances with 61 software companies this year, a sharp increase over the 50 alliances it inked in all of 2000. The company expects the partnerships will add $2 billion in new revenue to the top line this year.
The alliances require the software companies to use specified amounts of IBM hardware and software. For integration and consulting, the software companies use IBM Global Services, the fastest-growing division and largest employer at the giant company.
In return, the software companies get access to IBMs global marketing muscle, as well as its engineering and financing capabilities.
“No software vendor can be an island by itself,” said Bill Pearson, J.D. Edwards & Co.s technology alliance manager. “We might be viable without IBM. But we are far more competitive with IBM on our side.”
The push for alliances began in late 1999, when IBM abandoned its marginally profitable enterprise application software business and decided to partner with independent software vendors. At the same time, IBM streamlined its internal processes, winnowing more than 50 different partnering programs down to just four.
Increasing the number of partnerships “allows IBM to solve a wider percentage of their customers problems,” said Mike Gilpin, vice president and research leader of Giga Information Group. “They can grow Global Services, do more outsourcing deals and provide more strategic assistance to clients.”
Indeed, expanding the reach of Global Services — which produced almost 40 percent of the $88 billion in revenue IBM took in last year — is the linchpin of the partnership strategy.
An example of that push occurred in June, when IBM signed an alliance with giant German software maker SAP, which already had about 5,000 Global Services employees working on SAP accounts. The new deal calls for Global Services to supply up to 2,000 more employees to help SAP continue rolling out its Web-enabled software, mySAP.com.
For example, if an automaker buys software from SAP to bolster sales management, a busload of IBM technologists would help the company install the software and train its employees.
The deal also calls on IBM to provide hosting services to SAPs customers, another area in which Global Services is vying for market share.
“We werent able to fill all the customer demand,” for integration and training on mySAP.com, said Holger Rasig, a global partner director of SAP. “If we are going to have a successful rollout of mySAP.com we have to have IBM Global Services helping us. Definitely.”
Plus, the alliance helps IBM in its ongoing battle with Oracle. Two years ago, Oracle produced SAPs preferred database. But then Oracle began competing against SAP in the Enterprise Resource Planning sector. SAP now prefers IBMs DB2 as its database.
The partnerships appear to be increasing hardware sales. Enterprise software provider J.D. Edwards, which now sells co-branded IBM servers, said that over the past year or so, it increased the percentage of its clients systems that run on IBM hardware from 58 percent to 67 percent.