The Four Hundred

Three weeks ago, I outlined IBM's sales plans for its Server Group and business partner channel to help give you an idea of what IBM is thinking, so you can plan. Since that time, I have been digging around for information on IBM's marketing plans for Server Group, so you can get a sense of what IBM's priorities are. Both pieces of information will help you try to figure out how your plans mesh with IBM's expectations for 2002.

If you talk to server vendors on an official basis, as I do regularly, it can sometimes seem that they see opportunities to increase their market share and revenues in all corners of the server arena. This is obviously not the case right now. These companies are constantly trying to eat each other's lunch while protecting their own. In a wobbly economy, as we have now, vendors concentrate on eating market share, because they know there is no way they are going to increase sales, and because they believe, correctly or not, that getting a customer in a bad economy gives them an opportunity to sell that customer more equipment, software, and services once the good economy returns. Beyond these general statements, server vendors rarely divulge what they are really thinking about the market they live in, what their true goals are, and how they are going to go about chasing down opportunities. But there are people who know such things, and people talk. Word gets around, and sometimes it gets around to me. And then I tell you what I have heard.

As I showed several weeks ago, IBM relies very much on its business partner channel to sell servers, and this year it is counting on its so-called "big plays" to drive the bulk of its sales. These big plays are e-business, enterprise applications, small and midsize business, competitive replacement, and server consolidation, and we have discussed many of these marketing campaigns in prior issues of this newsletter. What I didn't realize several weeks ago was that, according to sources, IBM expects that upward of 80 percent of its investment in demand-generation in 2002 will go into the big plays, with a heavy focus on new customers and new workloads. IBM has apparently invested $50 million in co-marketing and training for eServer partners in the big plays, and it has invested another $30 million in solution practices for the iSeries Alliance Program.

IBM is also apparently increasing its reliance on partners for generating sales opportunities and for controlling customer accounts, which IBM's marketeers refer to as "opportunity ownership." According to sources, IBM expects its direct marketing campaigns to cull only about 8 percent of its potential server deals in 2002, which explains why IBM doesn't spend big bucks on marketing campaigns in the iSeries market, or indeed in any of its other server lines. IBM expects another 8 percent of sales leads to come from independent software vendors and systems integrators, and 9 percent to come from business partners authorized to sell eServer products. IBM's Web site will, the company expects, contribute about 19 percent of its sales leads, and IBM's sales forces in Server Group and other groups will contribute another 19 percent or so. Upward of 38 percent of leads coming into IBM for Server Group will come from customer reps at IBM.

Once a lead is identified, someone has to take charge of it and chase it down. Sources say IBM's own sales force will handle about half of these opportunities and fulfill about 20 percent of the sales (presumably ranked on revenues). The company's Web site will own about 7 percent of the sales leads and generate about 20 percent of Server Group's order fulfillment. Business partners will own about 40 percent of the sales opportunity, in IBM's language, and will be responsible for about 60 percent of the sales IBM books in Server Group. To say IBM is very much dependent on its partners for its revenue stream is obviously a big understatement.

IBM has been talking about its big plays for six months now, but so far no one outside of IBM has been able to quantify just how big these opportunities are and why IBM has targeted them. But IBM has been sharing this information with its partners, who need to understand why IBM chose these targets and how big are the targets they need to hit. These numbers are as interesting as they are revealing. Take a look at our table that shows IBM's internal competitive analysis of the opportunity that Server Group has in 2002 and how its big-play campaigns will focus on these opportunities.

In IBM lingo, market opportunity means the potential market size for server sales, including drag-along sales for services and auxiliary products like storage and, presumably, any retail markup on these products. It is not revenue, but aggregate potential revenue, among all server vendors. The worldwide server factory revenue in 2002 will be about $55 billion, according to preliminary estimates made by market research firm IDC earlier this year, yet IBM puts the market opportunity for Server Group at closer to $84 billion. As you can see in the table, IBM's efforts will not be exactly proportional to the market opportunity--just because competitive replacement is a small part of the overall opportunity does not mean that IBM is not focusing, particularly with its xSeries and pSeries products, on competitive replacement. IBM reckons that competitive replacements will account for about only $4.5 billion in sales opportunities in 2002, but the company expects that competitive replacements will account for over 36 percent of sales in its big-play campaigns. Aside from competitive replacement, IBM ranks its big-play priorities the same as its opportunities at large, but with different levels of emphasis.

Perhaps more significant, IBM expects business partners and other deal influencers like software developers and systems integrators to be engaged in fully 80 percent of the big-play deals associated with small and midsize businesses, a market IBM reckons is growing at 20 percent. Partners are expected to participate in 55 percent of the server consolidation opportunity and 58 percent of the e-business infrastructure deals. IBM, through its close relationships with close to 100 ISVs, does not plan to have partners engaged in enterprise application deals that push server sales to the same extent, and the company looks like it is keeping about half of the potential competitive replacement sales as well.