Lotus enters IBM universe

Lotus will gain closer ties to IBM.

The fact that Lotus Development Corp. is in the middle of yet another restructuring to streamline operations and reduce costs may come as no surprise. But the scope and details of the plan, which may include job cuts, are leading many to conclude that the beginning of the end of independence for the once-powerful company is at hand.

Word of the reorganization, revealed to Lotus employees early this month in an internal memo from CEO Al Zollar, came on the eve of the companys annual Lotusphere user conference in Orlando, Fla., where Lotus will launch its long-delayed Raven knowledge management product this week.

The Cambridge, Mass., subsidiary of IBM is not releasing details of the reorganization, but sources familiar with the plans say that the strategy is aimed at eliminating some of the redundant business units and departments between Lotus and IBM.

"Youll see greater assimilation of Lotus into IBM and definitely see IBM exerting more control over Lotus," said analyst Ian Campbell, of Nucleus Research Inc., in Wellesley, Mass.

Despite the internal memo, Lotus hopes to keep a tight lid on reorganization plans, said spokeswoman Mary Rose Greenough. "This is not a public event," Greenough said. And despite the reorganization, officials maintain that the company will continue to control its own destiny. "You wont come over here and see the [IBM] logo on our buildings any time soon," she added.

Since IBM acquired Lotus for $3.5 billion in 1995, there has been speculation that IBM planned to pull Lotus into the Big Blue fold and make it nothing more than another division. The rumors reached a fever pitch last year when Zollar, an IBM veteran, took over the CEO reins from Jeff Papows.

Papows, who left to run a private company, said last week that IBMs desire for more control over Lotus was evident early on and a major reason for his departure. "[Lotus] is becoming, by design I think, less independent, and that was part of why I left," Papows said. "My running what amounts to a lab didnt make a lot of sense."

What all of the reorganization means for Lotus immediate future is far from clear. But some observers believe the two companies software development efforts will be more tightly linked, leading to further integration of their respective product lines.

One line of business that analysts say is ripe for streamlining is the e-learning unit. IBM and Lotus last spring created a division, Mindspan Solutions, for selling e-learning products and services. But the two maintained separate e-learning sales forces in addition to a new Mindspan sales team. This unit, along with the knowledge management department, is a likely target for further integration into IBM, sources said.

"The process of assimilation into IBM is well-advanced by now," said a former IBM and Lotus executive. "Theyll continue to pull Lotus in."

Despite the uncertainty over Lotus future, some corporate customers see the restructuring as a positive sign. "I think its a good thing," said Dave Thompson, senior manager in the global risk management services department at PricewaterhouseCoopers, in New York, one of the largest Notes customers in the world. "IBM understands products. They know that if you dont have good usability in your products, youre dead. Notes is an awfully hard product to use compared with whats out there. If some of IBMs mentality can trickle down into Lotus, that would be great."

Before the restructuring began, some of Lotus top personnel started moving out. In mid-December, Cliff Reeves, who headed up the knowledge management group, left the company. And Steven Beckhardt, then president of Iris Associates, the Lotus subsidiary responsible for the invention and development of Notes, stepped down to assume a more consultative role.

Reeves departure after 30 years at Lotus and IBM came at roughly the same time IBM Global Services announced its knowledge management offering, which includes software from third-party vendors that competes with Lotus Raven.

The announcement angered Lotus officials, sources said, and caused Lotus executives to wonder aloud why the companys corporate parent was playing both sides of the street.

In the aftermath of IBMs knowledge management announcement, the two sides had a long discussion, with Lotus executives expressing their displeasure with the fact that Raven was barely mentioned in the IBM release. In addition, Lotus executives apparently did not know the extent of the IBM offering until it was announced.

IBM already has an extensive involvement in knowledge management, through its Institute for Knowledge Management project and IBM Global Services offerings, and Reeves departure is likely to portend more IBM involvement in Lotus KM efforts.

"The fact that Cliff left is no surprise," said one source close to Lotus. "Hes brilliant and still has a bright future, but its not as an IBMer. The restructuring has sort of been happening departmentally for a while. What makes Lotus Lotus is going away. Youre going to see a lot more blue and a lot less yellow." ´