System i VIP Initiative Boosts Sales, Says IBM

Published: November 12, 2007

by Timothy Prickett Morgan

According to a statement released last week by IBM, the Vertical Industry Program (VIP) marketing effort, which Big Blue announced in late January to help target specific customers in specific markets that are well suited to buying System i servers and selected applications, is showing promising results in helping to boost sales of the venerable midrange platform. Exactly how much the VIP effort contributed to helping System i sales, IBM did not, as usual, say with any precision.

IBM has been working on developing the VIP initiative since 2005, when the System i marketeers and sales executives wondered if a more targeted approach to iSeries sales (the platform was not called the System i yet) in the small and medium business space would work better than a broad marketing and sales effort trying to reach all customers in all industry sectors of all industry sizes. Obviously, the former costs a lot less money than the latter, and if you identify rich targets from the get-go, your conversion rate and the profitability of a sale can be a lot higher. To that end, IBM did some footwork with ISV partners and resellers from all over the globe and identified 80 specific market niches--an industry, an ISV partner, and a very precise geography (sometimes down to as fine a grain as a city like London or Las Vegas)--to scare up some new System i sales.

The statement put out by IBM last week concerning the VIP effort is the first time that Marc Dupaquier, the general manager of the newly constituted Business Systems division, which is comprised of the low-end of the former System i division's product line, has surfaced publicly since taking on his new role. The Business Systems division has been constituted from half of the former System i division to cope with the marketing of servers to small and medium businesses, as opposed to large enterprises, and for now, its product line is comprised of the entry System i 515, 520, 525, and 550 servers as well as i5/OS; larger System i machines and the development of the i5/OS operating system were rolled into the System p division in July to create IBM's Power Systems division, which has Ross Mauri as its general manager.

"The success of the Vertical Industry Program is predicated on IBM's understanding that small and medium businesses identify themselves in the context of their industry and therefore seek industry-specific expertise," Dupaquier said in the IBM statement. "The VIP is now the backbone of our sales and business partner strategy for the new Business Systems division and will move existing and future IBM technology to small and medium businesses with the help of business partners."

After nine months, IBM has expanded the number of VIP niches (combinations of industry and geography) from 80 to 120 and has expanded the availability of the effort to over 20 countries on a global basis. The VIP program has been credited with double-digit shipment growth for entry System i platforms, according to an IBM spokesperson, but precise figures were not given; IBM also said that the VIP effort has "exceeded financial targets," but it is not clear what they are and who set them. For those ISVs picked to be in the Vertical Industry Program, IBM helps out with lead generation, co-marketing, and application modernization help--whatever it takes to make an application sale more likely on a System i. IBM is not talking about these niches in any specific way, since it does not want to tip off competitors as to where it is making its marketing efforts.

While shipments have been growing for the System i platform in recent quarters, undoubtedly helped by user-based System i 515 and 525 servers and i5 520 Express machines as well as marketing efforts like the VIP effort, revenues have been falling for the System i platform for many quarters. Of the past 31 quarters, 20 have declined year-on-year, and the past eight quarters have been in decline. And the rise in revenues in 2005 were not quite large enough to make up for declines in 2004, just like the revenue declines in 2003 were not enough to make up for declines in 2002.

This kind of revenue decline flies in the face of what other vendors peddling servers are seeing these days. IBM, Hewlett-Packard, and Sun Microsystems are seeing customers buy fatter servers that they then virtualize and use to consolidate many physical servers onto, thus gaining efficiencies in CPU and memory usage and reducing their footprint count, energy consumption, and administration headaches. What this has meant is that as shipments are declining in the single-digit percentage range, revenues have been steady or down only slightly for RISC/Unix and mainframe servers. The problem, at last as far as the virtualization trend is concerned, is that the AS/400 started this transition eight years ago, and many customers have already long-since deployed logical partitions and consolidated their boxes. They already spent big bucks to buy that big Power4 or Power5 server so they could get rid of one, two, or maybe three different AS/400 and iSeries boxes in their shop. Which means any future revenue growth for the System i platform has to come from capacity growth--unlikely in a troublesome economy, since people are not adding applications and end users at a feverish rate, or expanding into new markets--and boy, is it tough to fill in the revenue gap this way.

But, IBM is to be commended for the effort, and any success story is a good one as far as most of us are concerned.

As part of the announcement last week, IBM once again talked about Project KOBI, an initiative that Mark Shearer explained the company was working on to make it possible to install a suite of SAP applications on a System i box in a few days instead of weeks. (I had misspelled the effort as Project "Kobe," after the Japanese beef, when I wrote about it last May.) IBM did not say exactly how this feat is accomplished, how it compares to other platforms, or when it will be generally available as a product. But the company did say that the System i platform was the only IBM system that was being developed under the project--at least for now. We all know how any differentiation that might benefit the OS/400 and i5/OS platform eventually gets taken and adapted to IBM's other server lines.

I have been after IBM to talk to Dupaquier now that he controls most of the volumes in the System i server business. Now that Dupaquier has had time to get a sense of what the System i business is and what his tasks are as head of the Business Systems division, he is apparently getting ready to chat with the press about how he is going to tackle the challenges he faces to grow the low end and midrange of the System i business. I am looking forward to an interesting discussion.

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