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    Tivoli Sings the Blues

    By
    Jacqueline Emigh
    -
    January 29, 2001
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      Tivoli systems was on track to be a shining star in IBMs portfolio of acquisitions. But the luster has dulled to merely a distant memory.

      The developer of software for monitoring enterprise IT systems has suffered a streak of woes, including a massive brain drain and competition from agile newcomers that have eaten into its market share, say industry executives and analysts.

      The same wailing can be heard throughout large systems-management firms. During the 1990s, those companies held the key for helping companies manage their IT systems. That lock on the market is over.

      Snowball Effect In trying to manage large enterprises, the software grew so complex that many companies used only a fraction of what they bought, making it hard to justify the expense. And to make matters worse, they had to hire additional IT staff to run it.

      “Weve seen companies implement one-tenth of what they buy,” says Lee Schulz, Eastern region sales manager at Logical, a solutions provider. “Customers get lost in the complexity and discipline of it and implement only very fundamental components.”

      Industry executives say the behemoth solutions approach is outdated. Whats selling now are point solutions wrapped in plug-in modules, which are eating away at the market share once held by Tivoli, Computer Associates and Hewlett-Packard.

      “The enterprise framework systems-management play by Tivoli, Platinum Technology and Computer Associates Unicenter is dead,” says Ed Taylor, CEO of Collective Technologies, a managed-service provider.

      Given that scenario, the clock is ticking for Tivoli, which IBM bought in 1996 for $743 million. How bad is it? Bad enough that IBM chairman Lou Gerstner singled out the subsidiary for contributing to the declining Q4 revenues. Overall, IBM software revenues fell, in stark contrast with the strong growth the company posted in its hardware, financing and Global Services divisions.

      Tivolis public scolding is a hint that if things do not improve, IBM may fold the company into its software group. “It was a very public rebuke. Im sure the [Tivoli] executives were aware they had a problem, and IBM wanted to underline the message,” says Rich Ptak, VP at the Hurwitz Group.

      “There are rumors that IBM wants Tivoli back inside,” Ptak says.

      What Problem? The word inside Tivoli sounds remarkably different. Company executives say IBM is not unhappy with Tivoli.

      “I hope were in good graces,” says Mike Toomey, senior VP for global and midmarket business solutions at Tivoli. “IBM has approved our plan for the year, and our management team has the total backing of IBM. Tivoli is core to IBMs e-business infrastructure.”

      Moving forward, Tivoli says its solutions are clearly interwoven into IBMs new marketing campaign.

      But what ails the company is execution, as exemplified in its failed integration of Software Artistry, say industry experts. Tivoli bought the company in 1998 and late last year sold at a loss its ServiceDesk solution—which grew out of the acquisition—to competitor Peregrine Systems. Peregrines product is widely installed by IBM Global Services. As part of the deal, Tivoli will resell Peregrines product.

      “ServiceDesk was once hailed as critical to its future as an end-to-end service-management provider,” says Jonathan Eunice, president of Illuminata, an analyst firm. “Basically, Tivoli failed to follow the right development plan, and they are losing ground.”

      In addition, Tivoli has been hobbled by a steady loss of executive and technical talent. The departures in 1999 of Tivoli torchbearers such as Martin Neath, former executive VP, and Tom Bishop, former CTO, were just the beginning.

      “There has been some executive turmoil at Tivoli,” says Robert J. Labant, chairman of Candle. “I wouldnt want to be at Tivoli with Lou [Gerstner] breathing down my back.”

      On the strategic front, the companys marketing activities never fanned the right customer fires to fend off competition by aggressive startups such as Micromuse, NetIQ and Procuity, experts say. Those companies developed key point solutions that could work alone or with larger systems-management software.

      Those new competitors also zeroed in on key markets like small-to-midsize business, sectors in which Tivoli never got the chance to play.

      Partner Sales “They dont have a product fit in our business demographics in the five- to 50-seat company,” says Ted Hunter, president of solutions provider Downtime. “We work with Procuity. Its not the high-end super stuff that Tivoli has, but it gets the job done.”

      Tivoli also has been slow to react to a changed market. Computer Associates, in contrast, has rebranded itself as a company that manages e-business and has loosened its once ironclad licensing agreements.

      While Tivoli says its indirect sales increased 50 percent last year, and that its partner relations have improved, service providers say it has a lot to learn and it needs a better pricing model. “They have not been a good partner in the past,” says Jim Nichols, VP of operations at Solid Systems Inc.

      Tivoli insists it has IBMs backing. The question is, for how long?

      Jacqueline Emigh
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