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IBM's million-dollar baby

IBM announced it is pouring more than $125 million into its iSeries ISV partner program in an effort to regain momentum in the midrange server market.

Following Mark Shearer's appointment as iSeries general manager in July 2004, IBM took a long, hard look at the state of the midrange server market and its place in it. What it found was an untapped goldmine -- a market growing as fast as any segment in the industry and full of customers looking for more TLC from their vendors.

That's why Big Blue, which has suffered criticism for failing to rally the software development and user community around the iSeries, announced Friday that it will provide more than $125 million to software partners and tool developers that create products for the iSeries line.

The investment is aimed at curbing Microsoft's chokehold on the midmarket segment of the estimated $46 billion server market. IBM has had its problems keeping up with Windows in the midmarket realm as of late, with iSeries revenues slipping the past four quarters.

IBM has recognized that in many parts of the world the mid-market is growing faster than any other market, and most of the major suppliers haven't given it the attention it deserves.
Tony Lock
chief analystBloor Research

IBM's strategy is intended to spark innovation efforts by expanding relationships with current partners, while increasing the number of independent software vendor (ISV) partners tenfold, to more than 2,500. Big Blue said it intends to provide these ISVs with an average of $50,000 in services in an effort to get out a wealth of new offerings for an estimated 250,000 midsized customers worldwide.

IBM is responding to customers' desire to pursue advanced technology on the iSeries. But most customers have neither the time nor the inclination to glue together solutions for themselves.

Enabling partners to innovate software on the iSeries platform is a major component of IBM's overall strategy to grow its server market share. Big Blue wants software developers to deliver applications for RFID, Web services, portals and personalization to iSeries customers.

According to Tony Lock, chief analyst at U.K.-based Bloor Research, IBM's goal of building a strong community around the iSeries is essential if the company wishes to fill a void for customers in the marketplace -- customers with money to spend and needs that haven't been addressed by the major vendors.

"It's absolutely critical. IBM needs to have their ISVs on board to deliver solutions. Without an efficient partner channel that is ready to address the needs of the midmarket, none of the major vendors will penetrate the market anywhere near as well as they should," Lock said.

Over the past several years, IBM has dumped $1 billion in the platform's product development, marketing initiatives, partners' and tool vendors' programs, and incentives. That's a lot of money -- even for IBM -- but according to Doug Fulmer, an IBM eBusiness infrastructure sales executive, the figure isn't as important as the message.

"We're making a huge investment in bringing modern and world-class platforms to the midrange customer set," Fulmer said. "It is a huge statement of endorsement from IBM in the iSeries platform and to customers moving forward on the platform."

For more information:

iSeries revenues disappoint -- again

SAP-friendly iSeries lowers ERP barriers

According to industry researcher International Data Corp., the midrange enterprise server revenue represented an estimated 26% of the worldwide server market revenue in 2004. IBM, which took in over 20% of its total revenue from the small and midsized business market in 2003 and 2004, sees the SMB market -- where the majority of its iSeries customers lie -- as its largest single market opportunity, with the potential to generate as much as $370 billion in revenue.

"IBM is cranking out on the SMB market as much as they can, and the SMB push with IBM is real," said Jim Balderston, a senior industry analyst with Sageza Group Inc.

"IBM has recognized that in many parts of the world the midmarket is growing faster than any other market, and most of the major suppliers haven't given it the attention it deserves," Lock said. "It's a good investment for IBM. It holds a lot of potential for them."

IBM also plans to launch the Initiative for Innovation program, which will include five iSeries innovation centers worldwide that will help its software partners with software on-demand business capabilities, an open developer's road map, greater co-marketing agreements and virtual loaners.

Let us know what you think about the story; e-mail: Luke Meredith, News Writer

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