Q&A with the Dynamic Duo for iSeries Marketing and Sales

by Timothy Prickett Morgan

When Mark Shearer took over as general manager of the iSeries Division in January of this year, he took over a business that had seen better times financially but that also had a staunch group of customers and a fired-up vice president of marketing, Peter Bingaman, who was hired by Shearer's short-lived successor, Mike Borman. Marketing is only half of the sales problem, though, and Shearer eventually recruited Bill Donohue from IBM's pSeries sales team in the Americas region to head up worldwide iSeries sales in early July.

In a very real sense, Bingaman and Donohue are the dynamic duo of iSeries revenues and profits, and they have one of the toughest jobs in IT: Getting the iSeries back to where the AS/400 was in terms of sales and other less tangible things like market awareness. As we all know, the AS/400 and iSeries line has suffered from years of neglect in marketing and sales, even as it delivered some of the most sophisticated server technology available in the IT market. There are a lot of reasons and excuses for this, and we could spend hours on it. Suffice it to say, IBM seems to have seen the error of its ways and is trying to rectify the situation.

Alex Woodie and I sat down with Bingaman and Donohue recently at the COMMON user group meeting in Orlando, Fla., and talked about the marketing and sales efforts that IBM is making to get the iSeries pumped up again.

Alex Woodie: So what do you think of your first few months on the job?

Bill Donohue: I really have traveled. I've been to 10 countries in two and-a-half months, and I've visited about 12 of the 16 iSeries sales regions. I've met a lot of customers, business partners, and ISVs. And there is a lot of momentum on the partner side, that's one thing that's impressed me. The loyalty of the customer base has impressed me, greatly. And the fact that most people now are starting to talk more and more about integrated, simple solutions is important. So all that you hear has been confirmed. I came in the first week and listened to the vision that Mark had, that Peter had, then I went out and tried to see where the market really was.

I have spent a lot of time with our sales reps and our business partners, trying to listen to them, to see what their issues are, so I can devise a simple strategy that's hopefully going to put us on a sustained growth path. And that's what I think we're doing right now.

Timothy Prickett Morgan: What's your growth target? Where do you want to be five years from now?

Bill Donohue: I'm not as tied up in a absolute growth target, although we have talked about double-digit growth as a target. But what we're more focused on right now is consistency in the business, and consistent quarter-after-quarter growth. So if you look at our revenue over the last several years, you'll see maybe a good year followed by a bad year, an OK year, then a bad year. Lots of this up and down on the chart. I'd like the chart to be more of this [levels hand out to demonstrate a consistent growth rate]. So that's really where our focus is. Our goal on a high level might be 10 percent. I'm very happy with just consistent growth in this market.

Timothy Prickett Morgan: Can it get back as high as it was in the late 1990s?

Bill Donohue: In what timeframe? I think we can get back to where we have been maybe a couple years ago, but we certainly have the opportunity if we hit on all cylinders to have a business like we used to. But we're going to have to make great progress in particular in the new account piece of the business. If we can get that extra vitality, that extra jump, that extra brand awareness. There's sort of an intermediate step of where we get to the revenues of a couple of years ago, and then moving up from there.

Peter Bingaman: You never want to set an objective that's so aggressive people don't believe it's credible. You want to set milestones that you need to hit, that's the way we're setting them. We're being very bullish, though.

Bill Donohue: That's my view of the market. Consistency of growth is really what I'm all about, so we're not thinking of these negative growth charts.

Timothy Prickett Morgan: What's your profile of the installed base? How much old stuff is out there that can be upgraded? How much of this stuff is three, four, or five years old, even six or seven years old? It just keeps going. That's one of the great things about the AS/400 and now the iSeries: The damned thing doesn't fail. But it also means that the damned thing doesn't fail, they don't have a reason to upgrade necessarily. I have a suspicion that there's something that looks, smells, feels like the System/36 base did when the AS/400 was launched, that can be attacked, that can be a really big boost for sales.

Peter Bingaman: We need to get the ISVs modernized first, then they in turn give it to their customers.

Timothy Prickett Morgan: But a lot of these companies don't have ISVs. What I'm asking you for is the profile.

Peter Bingaman: I have the data, but I don't have it off the top of my head. It's a huge opportunity for us.

Bill Donohue: I think that market, the installed base, affords us a great opportunity. I think you're very accurate in that. But I do think the market is going to grow in three areas. I think we're going to have to do a better job of going after our largest accounts and helping drive business there. I do think that we have a very big piece, I'll call in the middle, of the installed accounts, and then I think we need to do a better job of attracting new customers to this platform if we're going to grow. And if you look at how we're going to attack the middle market--I'll call it the middle market for now--some of it's going to be unearthed by some of the terrific advertising that Peter is doing. Some of it could be in a more specialized, in a more focused coverage model so that we have a group of partners and a group of reps that go only after that base, and they bring skills to drive business there, and their attention alone lifts our boat a little bit.

Today, I have reps that will wake up in the morning, and they may call a very large account, then they may make a call on an installed account, then they may go fight for new business, then they try to figure out how to work with ISVs, and if they have time in the afternoon they make a partner call. You can't do all five.

Timothy Prickett Morgan: I don't even have an idea of how big the direct sales at IBM is for the iSeries. How big is the organization?

Bill Donohue: You've got to view it in a couple of different ways. When I talk about direct sales, I'm talking about the whole go-to-market plan, which is the direct sales, it's also our IBM.com telesupport, our technical support, and all that around our brand. Do we give those types of numbers out?

Peter Bingaman: We typically don't, for competitive reasons.

Timothy Prickett Morgan: Is that something that grows? Historically, since Lou Gerstner came in as chairman and CEO in 1993, IBM's attitude has been, "OK, we want the partners to do a lot more of this. We want to manufacture technology and then we want the master resellers to buy this stuff, that's our immediate customer. And then downstream, the rest of you guys, here's your quotas, here's your targets, here's your incentives that you're going to get because you pushed the right kind of box to the right kind of customer." It's been that kind of a model.

I don't know that that works in this case so well, not when you're trying to get out there and reestablish contact. Before you guys came on board, they were going out and saying, "We're going to go out and contact every single AS/400 and iSeries account." So you guys did kind of go around the partner channel. Is there a way for you to sell more directly to these guys? Can't you do something crazy, like give any customer with an old AS/400 a free i5 for a year--something to get them in the game.

Peter Bingaman: That's a really expensive model. We actually have a lot of data on all the customers, as you can imagine. We have a pretty good sense.

We're lining up our first priorities, and our first investments are high-value customers. That doesn't necessarily mean highest revenue, that just means the highest value.

Timothy Prickett Morgan: They kind of go hand in hand.

Peter Bingaman: Not necessarily. What I mean is those customers who are more likely to buy. There could be a lot of customers in that statement. There could also be very few customers.

We're going to look at our top accounts, and we're going to put some direct coverage on them. We're going to try to build their business. We have other layers that are high-value customers, with a high propensity purchase, plus new potential customers, depending on the industry. I look at what you're talking about as an extremely expensive and risky investment to make, given where we are.

So we're trying to build a strong foundation for growth with a core set of customers that can take us to the next level of investment, where we can reach in and do a much better job of going after these smaller customers that you're referencing. Even with your idea for instance, "Free for a year," I can't contain that to those guys. Anybody in the world can take advantage of that, right?

Timothy Prickett Morgan: That wasn't my good idea. I just threw that out as an example. . . But you can contain it. Make it available only to current AS/400 customers who have older boxes of a certain size and vintage.

Peter Bingaman: One of the things we are doing this year is we're investing in a lot of database work, a lot of call outs, a lot of making sure that we even know who these guys are and whether they even exist. So that will lead into, we're building this foundation of strength and hopefully consistent growth quarter to quarter, we'll hopefully be ramping up our capability to figure out what we really need to do with these guys. We're showing really solid revenue growth, quarter to quarter, and we expect that to continue. We're certainly driving to ensure it continues. But underneath, are we doing that? A lot of them are big deals.

Timothy Prickett Morgan: I suspect there are more big deals than people know, and that's one of the reasons for the growth. The high end of the business is doing well.

Peter Bingaman: The high end of the business is doing very well. So in the meantime, our ability to grow this layer of ISV innovation, this iSeries Initiative for Innovation, that's very SMB centric, we've seen a lot of progress--I'm expecting that to kick in next year. Right? And while that's kicking in we're going to build this database capability and start to be able to target other customers. So we sort of layer our efforts a bit, so we can exploit the short term and explore the long term. That's how we're looking at trying to get things rolling.

Timothy Prickett Morgan: Do those guys spend any money?

Peter Bingaman: That's the point. How much time and effort do you want to put into someone who's going to spend $5,000 once every 10 years? It's not that they're not valuable to us in the aggregate, right? You put 100,000 of then together, and it's a lot of money. But at the same time, it's probably smart if we focus on fewer people who are purchasing every two to three years than we are on focusing on those folks who are just going to sit on another machine for 10 years. See what I mean?

Timothy Prickett Morgan: I get it. I'm trying to get them to get the new machine and not just sit there.

Peter Bingaman: Yes, absolutely. But it might just be that the fundamentals of the business model don't even allow them to invest that often, especially once they get to a certain level of capability.

Timothy Prickett Morgan: I just see that Windows box going in.

Peter Bingaman: And you know what? Maybe that's OK. I can spend $20,000 to $30,000 to get somebody to spend $5,000 on a new low-end machine, and then they don't spend again for 10 years.

Timothy Prickett Morgan: I get it. I don't like it, but I get it.

Peter Bingaman: Oh, it's really uncomfortable. Nobody likes it. If you can help us crack that nut . . .

Timothy Prickett Morgan: I'll keep working on it, Peter.

Alex Woodie: You guys can't really play the volume game like Dell can.

Peter Bingaman: We're not a volume business. We're a value business, and we have to understand that we're not going to be in the high-volume, commodity, mass-consumption box. We're not going to get that--at least in the near term. Maybe we get there some day, when more and more systems start to look like us. But today, it's not our game, and we have to be very smart about building our business in the right markets, that value proposition that we put forth into the market, build around it, extend around it.

Alex Woodie: It sounds like you're trying to service the current customers.

Peter Bingaman: One of the things we had to do this year was to reinvigorate our customers and our partners, to let them know, to send the right signals, that we're investing in this business again. Secure that understanding and commitment and confidence in them, so we can continue to invest and feel good about those investments. At the same time, we need to start rebuilding capability in other areas: new customer acquisitions, absolutely; new ISVs; modernized applications; broader developer roadmap; bringing more robust solutions to the market; new ISV recruitment. I don't know if you were in the Town Hall session yesterday. We talked about the VC meeting we had in Boston last week. It was really exciting. So we're trying to build on the short-term, but also build this foundation for the future. I think we, as a company, sometimes don't look at that way, because we're so quarterly driven. But where we are today, we're being pretty smart in the way we're thinking about things.

Alex Woodie: So what are the changes you're making with resellers?

Peter Bingaman: So we introduced a lot of new incentives that largely focused on making sure that we were encouraging our partners to sell SMB solutions. If you look at a company like Sirius, that for a long time was primarily a hardware reseller, they've put a lot more emphasis and investment in solutions, in SMB solutions. We put new incentives in place for new customer acquisition. Then we put this opportunity certification process in place to protect the largest of those partners who are really investing in the business . . . With the opportunity cert process we've seen a significant increase in partner participation. We're implementing very quickly now in North America and Asia/Pacific, so we expect to see similar results.

What would happen is the partner would be going in to win business from a customer, and they'd be putting in a lot of investment into winning that customer. Another partner would come in and undercut the price. So the opportunity certification process allows the business partner who was first in to certify the bid, and he gets the rights to it. If any other partner comes in and undercuts him, he doesn't get any incentives that go along with it. He really takes a hit in his margin.

Bill Donohue: We started with pSeries a year ago, and it dramatically helped our volume, particularly as it related to business partner success in the SMB. It greatly and dramatically turned that around. . . So they rolled it over to iSeries later on.

[Editor's Note: See IBM Gives the iSeries Channel Incentives to Grow and Behave from the April 11 edition of this newsletter for more on opportunity certification.]

Alex Woodie: So do you have the resellers that you want? Is the channel shaped the way you want?

Bill Donohue: That's a good question. I wouldn't quite say that. We have a very strong set of partners that I appreciate having. My view is I would rather have quality, not quantity. So just increasing the number of business partners is not a big deal to me. Making sure that each of our regional leaders that I talked about, our business executives, clearly understand what we are trying to do is more important.

Alex Woodie: Do you have the right number or are there too many?

Bill Donohue: I wouldn't say we have too many. We'll continue to move region by region, country by country, to assess the partners and understand locally and with these business leaders I talked about, the general managers, to really assess their business, try to understand how many they really do need.

Timothy Prickett Morgan: Do you know the percentage of revenue [that comes from partners]

Peter Bingaman: It's 85 percent of the revenues, but probably 70 percent of the shipments, so it's pretty high.

Timothy Prickett Morgan: There's no reason to think that number will go higher or should go higher, right?

Peter Bingaman: I don't know that we're overly concerned what the number is.

Bill Donohue: I haven't gone to the team and said, it's 85 percent today, and we're going to structure it so it's 80 percent next week.

Timothy Prickett Morgan: For p and i it's been a number that's grown over the last decade, so I'm just saying, is there a natural limit that's going to fall out. Is it just the size of the deal that determines who gets what?

Bill Donohue: It's the territory. For pSeries, we went from 45 percent to 52 percent. And this year it will be 54 percent. I don't know how much further it will go. But the increase from 45 to 52 and 54 is the result of the work, which is really to understand the partners and the territories, build partnerships with them, and start selling with them. And that made a big difference and it helped make the partners that we did decide to work with much more self-sufficient over time, and increased our revenue share in the partner community. I don't know if it will have the same effect here in the iSeries, so 85 percent can go to 92. I don't know. It's a pretty big number to build off of. I don't have any preconceived desire to move it either way.

Timothy Prickett Morgan: Is there any detail on the IBM Systems Agenda?

Peter Bingaman: There is an external presentation we can give you.

Timothy Prickett Morgan: What it sounds like to my ear is the attributes of the iSeries are going to be emulated as much as possible, if they're not already there, by the other platforms. Is that kind of the gist?

Peter Bingaman: I think that's part of it. I would say there are two angles to the whole thing. One is certainly within the system itself the integration attributes of the iSeries, some of that will carry over to the other platforms. There are no design points to lose the differentiations of the iSeries versus the other systems.

Timothy Prickett Morgan: My main concern is the "i" stays with iSeries.

Peter Bingaman: Right. And that will be the case. I don't know what's going to happen five or 10 years out, but that is the intent, to make sure we continue to have our unique value proposition. I think there's another design point though behind the Systems Agenda, which is cross-platform integration. So we can really significantly improve virtualization across systems management, across the amount of skills required to manage to in this scale out environment, the better off you'll be.

So this cross-systems capability, as well as intra-system integration, that we're really trying to get at. A lot of that will start to manifest itself over the next couple of years as we introduce new technologies. Vijay Lund held up that Power6 chip, which is a powerful statement of the sort of direction we're going after in terms of system on a chip. You'll start to see this happening. It's squarely targeted at this single point, with 75 percent of spending now is on maintenance, versus new hardware. That IDC chart we showed is the single driving point, quite honestly, for the Systems Agenda. If you were to summarize why, that's sort of it. If you look at the analyst reports we've done for the iSeries, the ITG studies we've done, and the banking industry notes--all of that is just squarely targeted at this problem. That's why we're saying the market is moving over our sweet spot.

Alex Woodie: Yeah, but you guys have been saying that for a couple years.

Peter Bingaman: I don't think so. I don't think that's fair. I think we really started to articulate that when Mark came on board in January. I don't think we said much of anything, to be honest with you, over the past couple of years.

Timothy Prickett Morgan: My main concern is, if everything starts looking like an iSeries, then what does the iSeries have that's a differentiator?

Peter Bingaman: Our opportunities for iSeries, we're starting this dialog with the analysts, we're going to start picking their brains, too. I think we have an opportunity to lead the creation, the emergence, of a category of systems. I think we have the opportunity to recognize with our analyst and press community, that it already exists today - i is one, z is one, HP's Integrity machines to a degree--there are systems out there that already look like integrated systems. It's the hardware, it's the security, it's the storage. And the Systems Agenda says that this is going to continue. So if we can create, lead the creation of this category, we have an opportunity to assert some leadership in the market.

If you think about it today, one of our disadvantages of the iSeries is we're not associated with any particular category.

Timothy Prickett Morgan: Well, there are some negative associations of the iSeries. You're the last minicomputer standing.

Peter Bingaman: And I think this new Systems Agenda with IBM's push behind it gives us the permission to step forward, and I think you heard Maureen McGuire say that, and really provide the thought leadership around what we think is emerging as a new class of integrated systems.

Alex Woodie: That's the key: Permission. It seemed before you didn't have that clearance from IBM.

Peter Bingaman: I think different actions were taken, the state of the business, the strategy we were on. There are a number of reasons that happened, but we are at a point in time right now this growth we look back on as a critical time for the emergence of the iSeries.

Timothy Prickett Morgan: So you can double the business, right?

Peter Bingaman: [Laughing] Over time. We're also being practical about it.

Timothy Prickett Morgan: And I think you can do it. IBM has done a lot of clever things to keep those AS/400 hardware numbers up, from moving to internal storage to counting 5250 software as interactive hardware features. I don't think you can get back to the early 1990s. But to get back to $3 billion a year, considering the installed base, should be possible.

Bill Donohue: Well, it starts with growth. And success breeds success.

Timothy Prickett Morgan: And you're going to be around for a while, right, Peter? How long is your contract Peter? Mark's always telling us about his. How long is yours?

Peter Bingaman: Five years, is that what you want to hear?

Timothy Prickett Morgan: I don't know. I don't want to hear anything in particular.

Peter Bingaman: I'm having a great time. I am having a great time. We're not getting comfortable, and we're staying on our toes. And we're not pretending that we're in Nirvana right now. We're not. We have a long way to go, but I think we're on the right points.

Bill Donohue: I want to leave you guys with a point. We are a much, much more focused and skilled sales force, and I think that's going to make a big difference to our customers, and a big difference to our growth and success.

Timothy Prickett Morgan: What about the partners? What do we do about certifying them to sell?

Bill Donohue: The partners do certify. They do go through education. I have a different view of it than some people. I really believe that we need work with each of our partner firms, understand exactly who is selling iSeries, the number of resellers, and make sure that each of those sellers is certified, and move up from there. We measure it a little differently today, in number of certifications by firm, which is a good metric. But I want to get to the point where our business partners community gets measured, like I'm measuring our face to face specialists, or IBM specialists, so I can really go firm by firm by firm and say, ok, you have 10 sellers on iSeries. You've made great progress, you've gone from five certified to 10, and then we've done something. And that's what we're in the process of doing right now.

Timothy Prickett Morgan: Does IBM have accounts or resellers that lead with iSeries, that only sell iSeries?

Bill Donohue: There are some resellers that sell either exclusively i, or mostly i. A lot of our partners have picked up, depending on the pieces of their business and where they are in their business plan, little pieces of our other hardware brands. So it's not uncommon for somebody to have a lot of iSeries, and a little bit of xSeries.

Peter Bingaman: A lot of ISVs are also resellers and dedicated iSeries shops.

Timothy Prickett Morgan: But a lot aren't. Like the former JD Edwards. They would sell whatever. They didn't aggressively go out and say, "You really should run OneWorld on the iSeries," which we both know they should have said. I'm just wondering if there's enough partners to actually go out and say, "This is what you need and stop talking about Windows."

Peter Bingaman: I'm not going to say I know for certain. But I would guess that over the past couple of years, they've sort of moved away from that. Wouldn't you? You've seen your business declining over the past couple of years. If you walk around this conference, and if you walk around PartnerWorld in February, and COMMON in March--we've been traveling the world. There is a new-found enthusiasm, they're investing again. And that's very clear, and that's good news. So I think this sort of environment that you're talking about is starting to take shape on our behalf right now. And I think as we start to communicate and take advantage of this market that we see emerging we're going to be generating even more excitement.

Timothy Prickett Morgan: Just North America or around the world? In the places where manufacturing is moving to?

Peter Bingaman: That's our opinion, too. So we're investing in those markets. You absolutely have to do that.

Timothy Prickett Morgan: I can recall old data that showed iSeries penetration at companies of a certain revenue size and in certain industries was as high as 40 percent in the United States. So few companies were as heavily computerized compared to now, but the penetration for the AS/400 was so high.

Peter Bingaman: I'll be brutally honest with you on this, I don't think it will come as a surprise. But we got complacent. We got complacent with the number of installed customer we had, and we felt a confidence in ourselves that was unfounded for a number of years.

So one of the things I've been making sure I'm drilling into the heads of our team is this: Don't talk about the loyalty of customers in iSeries, because I do believe people become comfortable with that concept that there's a lot of loyalty out there.

When it comes down to it, there's a powerful value proposition, when people talk about it all the time. I think our customers and our partners, those loyalists, really provided the glue, quite honestly, to hold this business together for the last couple years. And now we're reinvesting, we're boosting it, we're building it, we're putting it on a growth path, but I think this concept of loyalty, while it's a great thing to strive for, is something that can act and be quite lethal for us, if we're not careful. New customer acquisition is a big priority for us.

Bill Donohue: Bottom line, you can turn this thing around pretty quickly. Peter's already made great strides with profitability and margins. We've started to put more focus on it. I have no doubt that we can make a great impact and more and more people will lead with iSeries.

Timothy Prickett Morgan: We've got to get these guys to say, "Stop doing that, and start doing this."

Alex Woodie: Are you going to run those ads we saw in the Town Hall meeting?

Peter Bingaman: Yes. I think we'll probably start seeing them in about three weeks. We haven't finished the media buys yet. You'll see it on the NFL. You'll see it in primetime.

Timothy Prickett Morgan: How did the last batch turn out?

Peter Bingaman: You can't isolate it and take a look at the effectiveness of it. But if you look at the overall awareness numbers, you've got to believe that it had an impact. We're up 10 points in the first quarter after running the TV and all the press that Kathleen McGraw and the iSeries press team helped us generate, and 20 percent in the first half. That's a great story.