The Four Hundred

The future of the iSeries, many people believe, will be determined by whether it can attract new small and midsized businesses, or SMBs, as customers. Even though the iSeries has a huge installed base in the SMB market that dates back to the early days of the AS/400, this base has been eroding, little by little. This fact only recently has been acknowledged by IBM, but, to its credit, Big Blue is putting some healthy investments into the iSeries to reverse the slide.

One area in which the iSeries stands a good chance to make some hay is with its independent-software-vendor partners. Many of ISVs that have stellar businesses carved out of the heart of the SMB market have gotten the red-headed-step-child treatment from IBM in recent times. Those ISVs, and their trusted relationships with the users, are crucial to the solution approach to selling hardware, and IBM now realizes these business partners are critically important to the iSeries.

It's also worth noting that the iSeries customer base is also vitally important to IBM's xSeries success in the SMB market. Something close to 90 percent of iSeries shops are running servers based on Intel processors, and 75 percent of shops are running Windows-based Intel machines. A huge opportunity for the xSeries division slips away every time a once-loyal AS/400 shop abandons the platform. Happy iSeries customers are potentially happy xSeries customers. Although IBM has not done a good job of selling its own Intel servers to iSeries customers that have plenty of Intel boxes in their increasingly heterogeneous IT departments, that sales opportunity is no longer going to be overlooked.

In the recent past, IBM and the sales channel have invested heavily in the high end of the iSeries business. The loudest marketing and sales messages have been about increasing workloads on the iSeries. The attention was placed on three things: upgrade, upgrade, and upgrade. IBM was fairly successful with that strategy at the high end. The sales-channel partners certainly liked working the high-end segment, where commissions are higher and the sales cycle is shorter.

But an infatuation with only the most glamorous accounts was a big reason why customers in the SMB space never heard from IBM after the sale, which most times was instigated by an ISV. That's why many of those SMB customers are surprised and pleased that IBM is reconnecting with them now. It is an investment that is long overdue, but it is definitely a good sign that IBM is making that investment.

It's ironic that after all this time spent dancing with the Fortune 1000, it finally dawns on IBM that the key to success in the SMB market is application superiority and customer service. Someone at Big Blue has gone back to page one of the AS/400 launch in 1988 and has said, "Oh, yeah, the 'AS' stands for application system." The foundation of any solution is the software, and who is chiefly responsible for the software in the SMB market? The ISV.

If you go to market with the applications that take full advantage of the traditional strengths of the iSeries, and have application functionality that puts the others to shame, that's a pretty good formula to win sales. But even that is not enough. Microsoft, the main threat to IBM's once happy home in the SMB space, has the lock on application ease-of-use. The clunkiness of many feature-rich apps has been the Achilles heel in many situations where the potential to sell an iSeries or to add new workloads has been lost.

That brings us to the interesting part of the ISV program where IBM has increased its funding and is providing incentives to help the software vendors, its crucial allies in the war against the Evil Empire, modernize their applications. In most cases, this investment comes down to adding a GUI to existing applications, so the combination of incredible feature functionality is married to modern ease-of-use. It puts the ISVs in a position to not only remain competitive with their existing customers but also to regain the advantage once enjoyed when the competition was essentially closed out of OS/400 shops. Remember, many of these ISVs have long-standing relationships with their customers. A great deal of AS/400 and iSeries loyalty is built around the software. There is plenty of business in core areas such as manufacturing, distribution, healthcare, insurance, and quite a few prosperous ISVs are in the thick of it.

One company that has done very well in the SMB space is CMS Manufacturing Systems, an ERP vendor based in Nashville, Tennessee, that traditionally brings 20 to 30 new customers to the iSeries platform each year. (For more information on CMS, see "ERP Vendor Brings New Customers to iSeries.") Brian Angle, CMS vice president of marketing and sales, is fired up over IBM's ISV emphasis. As he sees it, this will be a great boon to iSeries software vendors, and the result will be enhanced products with which they can go to market. "Now IBM is placing the emphasis on who's bringing in the new-name accounts, and finding a way to spend money with these people so they can make their products better and their marketing message clearer."

About three months ago, IBM instituted a program expressly for the SMB space called Customer Reconnect. IBM started calling customers and paying attention to what the ISVs know about this market. IBM invested money and people in the SMB market, because now it realizes there is great value there. IBM came up with several incentives designed to help both itself and its iSeries ISV partners. There are three parts to the ISV incentive program: technical assistance, marketing assistance, and sales assistance. Although IBM places equal importance in each of these areas, it seems the most critical area is technical assistance.

The story for most ISVs is one of offering rock-solid, reliable, and thoroughly tested solutions. What many of them lack is a modern, Web-enabled front-end that brings much needed benefits, beginning with ease-of-use and including productivity gains, remote-access capability, and reduced networking costs. With a GUI, some ISVs are expecting to sell twice as much software as before. ISVs that became involved in the program from the start are already rolling out Web-enabled versions of their applications. Joe Rueda, the business unit executive responsible for iSeries ISV sales and marketing in the Americas, says that about 100 ISVs have signed on for technical assistance, and that the majority of these ISVs are interested in IBM's help in developing GUIs.

"Most are looking for a good front-end, with a GUI," Rueda says. "This is especially important when paired with the new iSeries Models 800 and 810, and the enterprise edition versus the standard edition [of OS/400]. "Application providers then can Web-enable their apps, can get off of the interactive, can take advantage of much lower price points in the iSeries product line, and can have a much more competitive offering at the lower end of the SMB market."

As more ISVs take advantage of IBM's technical and financial support, iSeries customers will see more GUI-ized applications coming to market. It's too early to know whether the ISVs will be able to sell solutions that result in new iSeries customers, but IBM's involvement is a major improvement.

Customers will stay on the iSeries because of the excellent applications. And it's realistic to think that new customers will come for that same reason. Add the new pricing structure for the box and the Express line of products, and the iSeries decline could be halted, and could even be reversed. At least it's become a lot easier to see some important programs being advanced within the iSeries ranks. It would be nice to get a complete iSeries solution that sells for $5,000, configured, or even $7,500. But at $10,000, the Model 800 is a far cry better than the Model 270, which cost at least $25,000 in a reasonable base configuration. But that's another story.