“Cost of development is not significant in software”

By : |July 12, 2006 0



Steve Mills was appointed senior vice president and group executive, IBM
Software, in July 2000 and is responsible for shaping IBM’s overall software
strategy and directing IBM’s $14 billion software business.

He is leading the next phase of IBM’s software strategy through which IBM is
delivering industry-specific middleware solutions to customers in 12 key
industries. Steve Mills spoke to Shubhendu Parth of Dataquest and Pragati
Simlote of CyberMedia News about his company’s plans in the software space and
how significant is India’s development role in IBM.

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Can you throw some light on IBM’s software business? Will IBM move towards
being more of a software company or will remain a hardware company? What kind of
mix are you looking at in the long term?

Revenue from IBM’s software business stood at $16.68 billion last year. We have
the world’s largest software portfolio with different products that we build and
deliver to the market place. Our focus is on middleware technologies and we do
things that are system level technologies, focused around support integration of
applications.

Thirty per cent of IBM’s business is from the US thereafter its globally
distributed uniformly across Europe, Asia and Latin America and so on. Our
software business has been improving its rate of growth as we have been shifting
the mix of our technology overtime. The branded middleware is growing double
digit. The overall growth rate for software was four per cent last year and the
branded key product middleware last year grew at about 10 per cent.

IBM has been a software company for many decades. You do not get to be $17
billion in software without having done it for a very long time. In software
business, we are the second largest in the world. Software is the largest profit
contributor to IBM. When we look at our three principal business areas –
software, hardware and services, software is smallest of the three in terms of
revenue and largest of the three in terms of profit. Profit from the software
business is 37 per cent of IBM’s total profit and 18 per cent of the total
revenue.

Steve Mills, senior vice president and group executive, IBM SoftwareWhat
is your acquisition strategy? Are you looking at acquisitions in India? There
was some talk about IBM may acquire the Chennai-based Polaris to counter
Oracle’s i-flex acquisition. What is the current status? There was also talk
about IBM looking at acquiring 3i Infotech (if not Polaris). What are your
comments??

Acquisitions remain part of our strategy to both add capability to our offerings
as well as enhance the overall rate of growth. Over the course of the last five
years, we have acquired more than 30 companies.

While acquiring a company, we don’t start with where a company might be
headquartered or where it does its development. We look at end-to-end
architecture structure and look to buy companies that add value to that roadmap
— not only technology — but in terms of existing customer base, go to market
capabilities, skills. So we are looking across a spectrum of characteristics in
terms of evaluation that we do of companies we are interested in acquiring.

Affordability also plays an important role. As we have been acquiring companies
over the years, we have found that a number of companies have had some amount of
development activities taking place in India. That has become a more common
phenomenon for software businesses around the world. They may have a small
development location in India. This is not unique to India, as we have acquired
companies that have had development locations in Jerusalem, Cairo, Australia,
etc.

Our approach is to look at the synergies we can get out from companies
particularly as we take a smaller company globally the opportunity to expand its
footprint in the marketplace by the taking the technology all around the globe
as we are doing business in around 170 countries. There is an opportunity for
considerable leverage and considerable incremental growth above the growing rate
of the company, which it realized prior to the acquisition.

We don’t comment on rumors. Pattern has been to acquire middleware
infrastructure companies. So you haven’t seen IBM acquiring traditional
application companies. We have done a number of acquisitions this year and you
have to just wait and see.

Customers worldwide are adopting service-oriented architecture (SOA) for true
business value. What is IBM’s SOA strategy?

SOA is a key element of IBM’s software strategy. There is a significant shift
taking place in the market today because businesses are rethinking their
business model, becoming more horizontal in the way they operate and are more
about connected processes. Therefore, we see tremendous growth of popularity of
concepts surrounding SOA.

We have been in the integration business for many years. We are the largest
middleware software provider and are the biggest participant in the SOA shift in
the market. We have very extensive thousands of connectors and adaptors that are
designed to help customers connect to the different formats of data that they
have in their business as well as connect to a wide variety of applications that
they have in their company. So we do native mappings to popular applications
like SAP, PeopleSoft, Siebel, etc. therefore designed to make it easier for
customers to integrate across their environment.

We have a very complete portfolio and will invest more than $1 billion this year
around SOA. We have done more than 2,000 customer engagements in the last couple
of years — the body, SOA structure, etc. On the services side of IBM’s business,
we have over 15,000 trained practitioners around our portfolio and are
knowledgeable about how to implement SOA. This is a very big investment for us.
We have teams around the world who are supporting SOA projects including a part
of the India team who is supporting SOA projects and SOA specific development
activities.

Information on demand (IOD) concept is a new approach, which treats
information as a service, getting the right information to the right people at
the right time. How is IBM’s IOD concept different from information lifecycle
management (ILM) of EMC, HP’s information management concept, etc?

We have been talking to customers about information as a service. The idea is
that they want to gain access to information important to their business. Very
often the information is scattered in various places and may be present in the
business or available from the outside. It is extremely difficult to bring all
information together physically into one place. But high bandwidth and the
technology that are available for being able to go out and grab that information
and manipulate it has made it possible for very creative solutions to be
crafted. These solutions are focused on federation of information to come up
with more effective decision-making process and give answers to important
question and problems.

Recognizing that the majority of customers use technology from many vendors —
and that no customer wants to rip and replace IT systems — IBM helps clients
access, manage and store other vendor’s hardware and software platforms allowing
them to integrate, access and gain intelligence on data sources from a variety
of vendors using open standards like Aperi and Eclipse.

Other vendors are talking about how they can physically bring data together and
that is not the customer’s requirement. Other companies have the ability to
store data and have some technologies for the management of data, but they don’t
have technologies for accessing the data. We are literally able to map 100s and
100s of different types of data store at one place.

What other companies are saying is that they can deal with storage and
management of data and claim that their storage capability gives them
effectively manageability. Apart from doing data storage and management, what
IBM does is the different usage of technologies related to data federation, data
access, data search, data mining- all designed to unlock the value of the data,
turn it into effective information, deliver it in a timely basis for those who
use it. That is a very different capability being talked about by IBM through
IOD.

How significant is India’s development role in IBM? What are your plans
regarding expansion of Indian ops?

IBM has around 38,500 employees in India and India is the second largest country
with respect to IBM employees. Our India software development lab has about
1,600 people spread across Bangalore, Pune, Hyderabad and Gurgaon. IBM also has
software sales and technology team in India and the IBM software sales technical
team in India is a part of the overall team in India. There are about 100 people
dedicated to software sales process. We don’t do everything independently but
work with clients in working out sales strategies. There is a business partner
channel structure as well.

The two significant pieces of development work being done out of India include
WebSphere and information management and data management brand. The Indian
development team does a lot of work around application connectors and adaptors
and specific work around SOA, process server technology, which is part of the
WebSphere family of products, etc. Now they are also engaged in some aspects of
our database, data management technologies.

We are not focused on low cost because the cost of development is not
significant in software. It is the go to market cost that is the bigger one. The
lab cost in India is also increasing, so our focus is on long term investment
and development of our lab. We plan to add more resources around software
development and expand to additional locations and split the lab work location
wise. The India team is also involved in sophisticated SOA development, which is
a high growth market, and as the requirement grows worldwide India will pick a
piece of that also.

The responsibilities of our lab in India are global. They are asked to support
the customers around the world and provide us the anchor point to serve
customers in the Indian market and the market across Asia. But their role is
larger than the local market. Their role is to provide support for customers
needs and requirements are on a global basis and incorporate it into the
products they are responsible for building. The long-term strategic benefit that
they would get is from participating not only in local markets but in global
markets as well.

© CyberMedia News

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