PartnerWorld 2004: Sam Plays It Again

You could say it was back by popular demand. After all, IBM has been promoting the on-demand concept for more than two years, and now it wants to make money from it, just as it did with e-business. Without a doubt, IBM’s on-demand computing strategy was center stage at the annual conglomeration of business partners that convened in Las Vegas last week, where the safe bet was following Big Blue’s advice: Get on board with on-demand computing and open standards.

The “on demand” terminology is nothing new to business partners or anyone who follows IBM, even from a distance. The IT industry giant has been characteristically vocal on this the topic for close to three years. Now that the door to a better economy seems to be creaking slowly open, IBM doesn’t want any of its faithful partners forgetting the message or going forth confused about the plan.

Frankly, the on-demand strategy has been a little fuzzy to many people. IBM Chairman and CEO Sam Palmisano admitted as much in a speech that opened PartnerWorld 2004. Despite its high ranking on IBM’s “to do” list, most people know “on demand” only as it relates to hardware and processing power: If you need more juice, it’s only a phone call away. Palmisano (along with everyone else who collects a paycheck with IBM’s name on it) is now on a mission to clarify, as well as expand, the understanding of the on-demand concept to a variety of processes, techniques, and schemes.

“On-demand computing isn’t one thing; it’s a combination of approaches to address what IBM sees as a fundamental change in how the IT industry operates,” Palmisano told his PartnerWorld audience, which was estimated at more than 5,000 resellers, independent software vendors, integrators and consultants. “The client is forcing us to focus on solutions,” Palmisano said. He spoke disparagingly of a recent era when IT companies threw technologies at customers, and he criticized the best-of-breed approach to building an IT infrastructure. (Any comparisons I might make at this point about politicians saying that government has to be responsive to the people would probably not fall on deaf ears. But government does need to be more responsive, and IT companies cannot just dump new technologies into data centers and walk away any more.)

In addition to the on-demand message, Palmisano tied in several other important themes during his address. Moving the customer base in the direction of open source solutions remains a constant theme. As expected, Palmisano chided IT vendors for their disjointed efforts at accepting of open standards. There was also the unmistakable and increasing interest in the small and midsized businesses market, a highly competitive battleground where IBM is undoubtedly pouring resources into such strategies as Linux and server consolidation. Both are important to the on-demand approach to winning more business.

In the iSeries market, Al Zollar, general manager of the iSeries, reported a year-to-year growth rate of 6 percent in the Americas, while worldwide the rate was one notch higher at 7 percent. He also said that IBM added 1,400 new iSeries customers worldwide in 2003, with the Americas accounting for approximately 800 of those. While new customers are a welcome thing, this was below plan and far below the 12,000 or so new customers that IBM added each year in the 1990s.

IBM usually doesn’t talk about iSeries server shipments, but it stands to reason that low-priced iSeries boxes outsell the high-end boxes. Even though high-end unit sales are measured in the hundreds while low-end sales account for a few tens of thousands of units, the bigger boxes generate more revenue and a lot more profit individually (obviously) and in aggregate (not so obviously). According to IBM, high-end iSeries sales were up even more than 7 percent, primarily due to the success of the server consolidation strategy that has been well received in the marketplace.

At Avnet, IBM’s largest business partner, the largest share of iSeries business is being driven by server consolidation projects. Tony Madden, vice president of sales, heads up the iSeries business. He said the typical server consolidation involves rolling two or three iSeries boxes into one and using logical partitioning to separate workloads. To a lesser degree he is also seeing some consolidation of Intel-based servers onto the iSeries. “Technology within the iSeries has made this possible, and customers understand how this helps them reduce costs.” Forecasts from various partners we spoke to indicate an upswing in the smaller iSeries boxes in 2004 as the sales channel hunkers down to win more customers and bring long dormant customers to the latest technology.

As you might expect, IBM and partners in the iSeries market were talking a lot about the SMB space at PartnerWorld. Nearly every IBM speaker made mention of it, and many of the break-out sessions had some type of SMB influence. “We have tremendous focus on the low end. It is strategic for us,” Paulo Carvao, vice president of iSeries sales in the Americas, said during a review of some carefully selected iSeries sales numbers. “Particularly as I try to drive new accounts and reactivation of older accounts that probably are using smaller machines than the current product line. That is why a very robust and competitive set of low-end offerings is very important for us. We will continue to invest in that segment.”

Naturally, IBM’s iSeries sales efforts will not ignore customers that have invested in large multiple-iSeries implementations over the past few years while chasing after leads in the SMB. However, the emphasis to gain more ground, especially in the middle of the SMB, is being clearly delivered to the business partners.

The ISV and partner programs are being credited for much of the iSeries revenue increases in 2003. The ISV Advantage program, which is headed by former iSeries general manager, Buell Duncan, is lending technical and marketing assistance to software vendors who are aligning their products with the on-demand and open source initiatives favored by IBM. To be successful selling solutions, as Palmisano plans, it is necessary to have powerful solutions. The strategy puts ISVs in the partnering mood as they jockey for advantage right along with IBM and the major resellers in the sales channel.

Carvao said the efforts in 2004 will place an increasing emphasis on customer activation and acquisition–an enhancement of the program that was implemented a year ago at PartnerWorld 2003. Making this sales effort pay off is in the hands of the partners. Take note that 87 percent of iSeries revenue is now attributable to the business partners. That’s a slight gain of 2 percent over 2002. No other platform revenue is so dominated by the partner channel. In comparison, the IBM business partners are directly responsible for approximately one third of IBM’s overall revenue. With the business partners basically in control of iSeries sales, it shouldn’t surprise anyone that marketing money is being directed toward the business partners.

Of course that strategy, when it gobbles up the majority of marketing funds available for iSeries, butts heads with a traditional sore point for the OS/400 installed base and has stirred up some resentment for IBM’s choice of marketing tools for the iSeries. Essentially, it comes down to other platforms portrayed in high-profile advertising campaigns aimed at prospective new customers, while the iSeries stays in the shadows. It’s been particularly aggravating for some to see those other platforms lauded for their cutting-edge technology while incorporating features long associated with the AS/400 and then the iSeries. Customer satisfaction continues to rise for the iSeries, but its image to those outside the installed base continues to project an old school image.

Avnet is shooting for 1,500 new customers–meaning first time iSeries users–in 2004. And Madden, who spent 22 years at IBM in the Rochester organization, said the iSeries is the most misunderstood computer in the market because it is by far the best. “IBM has done a good job with iSeries, it’s been very successful, but I just don’t think they fully captured the market position it should have had,” he said.

IBM said it will combat that perception with a new campaign announced at PartnerWorld called “iSeries is My Series” (see the separate story in this issue for more on that). It will continue to play on the Legends of iSeries theme that showcases feats of incredible reliability and ease of management for the OS/400 platform, but these are geared primarily to the partner channel and sales/marketing tools for the channel rather than the type of brand marketing the users would like to see implemented.

Two new offerings for iSeries users provide examples of marketing projects initiated through the business partners. The first is the extension of a service voucher program formerly available only on the high-end iSeries Model 825, 870, and 890 machines, but now being introduced on the Model 810 when running OS/400 Enterprise Edition. The voucher is designed to have partners install Linux, Windows, WebSphere or Lotus. The intent is to accelerate the adoption of new workloads on the iSeries and start customers on the road to making use of the increased capabilities built into OS/400 Enterprise Edition. IBM is also delivering e-business hosting services for small and medium-sized businesses on the iSeries. The benefit to organizations that take part is a predictable monthly cost associated with the IT department.

Both offerings illustrate IBM’s belief that the partners need to become more service oriented to succeed in the SMB market. If customers are open to these ideas, and business partners demonstrate an ability to provide the assistance in areas such as combining workloads and in combining business and information technology, look for these types of program to gather increased attention and financial backing from IBM. Plans are in place to bring more vertical integration in the sales channel, with the intent to offer customers access to partners that better understand the industry they are in.

The growth in iSeries revenue reported by IBM remains difficult to pin down. IBM officials won’t provide specifics, but they use a variety of statistics to illustrate the success in areas they have been marketing for several years.

Logical partitioning is one such area. Carvao calls partitioning “the building block of virtualization,” a technology that is crucial to the IBM message of on-demand computing. The value of on-demand capabilities, Carvao said, is reflected in the fact that 47 percent of Model 825s and 73 percent of Model 870s and 890s shipped during 2003 with logical partitions activated. According to IBM, there are more than 10,000 active logical partitions on iSeries and AS/400 boxes. Carvao said this not only demonstrates a level of maturity in this installed base, but also indicates customers are ready for mixed workloads on the iSeries. The idea of increasing workloads on iSeries and AS/400 servers in the installed base is, without exaggeration, at a critical inflection point for the future success of this platform.

Adding workloads to the iSeries is key to keeping the ecosystem healthy, and IBM and the reseller channel are making it a priority. For iSeries shops looking for ways to anchor the box, enlisting some help from the business partner channel on the topic of workload consolidation will not be difficult.

Over the years more than a few iSeries shops have seen workloads on their beloved machine nibbled away primarily from Intel boxes, where paradoxically the applications are weaker and the management becomes more complex. Through partitioning, the combined use of OS/400, Linux, WebSphere, Java, and soon AIX, IBM hopes to show how much of a load the iSeries can handle. Intuitively most folks don’t associate Linux and the iSeries. But IBM and the partners are going to be making a bigger case for this in the installed base.

“We are seeing a lot of take-up in Linux on the iSeries,” Avnet’s Madden said. “We have a little Linux ‘load and run’ CD that helps customers set up a partition. Once that is in, customers begin moving over things like file and print servers. That’s not going to change the world, but most customers would rather manage through iSeries than the kluge of Intel servers. It shows people how easy it is to accomplish. It can be done in an afternoon.”

When the Power4 line of iSeries servers were announced in 2003, IBM cranked up the public relations volume on the topic of on/off demand processing power. According to the numbers that IBM is eager to toss to the press, the iSeries installed base now has more than 8,000 stand-by processors available on demand. It also notes more than 950 processors have been activated by customers with the on-demand capabilities, and more than 1,500 processor days were recorded in 2003.

IBM sees resellers and distributors playing critical roles in the on-demand operating environments customers require. The selling skills and industry knowledge of consultants and integrators need to be on demand in order to win customers. On demand is also used to describe the independent software vendors’ industry specific solutions. For its part, IBM is rolling out product, training, marketing support, and sales incentives.

“You have to commit to our point of view. You have to commit to open standards. If you do that, we will invest with you, to help you become more successful,” Palmisano said. The channel may be generating more of IBM’s sales, but IBM is still calling the plays.