"Cost of development is not significant in software"

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.

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.

What 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.

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