What is IBM's plan to attract more third-party software vendors to porting their applications or developing new systems on the iSeries?
As we go into 2003, we're making major investments in three geographic segments: Asia Pacific, America and Europe. Our target there is to better enable new ISVs [(Independent Software Vendors), assist them in modernizing applications, and work with them to develop co-marketing agreements to help them expand their business and in turn help us expand our business. We have a lot of smaller ISVs that are very regionally- and industry-focused and that are still on an RPG and using green screen apps. We need to move them to be more Web-enabled. Over in Germany, there's a small company that just modernized their system, and launched the product under a new name. A week after the launch, we got a note saying they closed five new customers -- that's new to them and new to the iSeries. The iSeries has never had a public security problem to the extent of anything Windows or Unix has had. In the dawn of secure computing, why isn't IBM positioning this as a differentiator?
We position security as a core value proposition across all our servers. The structure of OS/400 has lent itself to robust security more than any of our other platforms. If we're going to use that [as a differentiator], it has to be in the right context. A pure security message isn't enough to get people to come to move to this platform. There has to be more to the value proposition. Security can only be part of the whole package. Buell Duncan is also focused on pricing. Is this a reflection on IBM's Green Streak program?
As you know, Green Streak is our pricing incentive program where we offered huge discounts on entry-level iSeries. The intent was to encourage users to move to this platform. Not only did it work, we learned a lot from that offering. When we looked at why customers weren't moving, it was because the price point was too high. Obviously, pricing is very important to these customers. When we roll out new products we have to seriously consider the pricing, particularly in getting new people over. We also learned that the tier pricing of some of the software jumps were still too high for some of these guys. They didn't take advantage of the program. We have to re-examine that experience in the future.
Editor's Note: While Marrese could not respond to questions about iSeries earnings, the following response was provided by IBM.
"As IBM's Chief Financial Officer John Joyce commented to financial analysts last week, this is one of the toughest operating and spending environments we've ever seen. Overall IBM delivered both modest revenue and profit growth. We continue to make significant investments in the iSeries platform. For example, earlier this year we introduced the new i890, featuring our award-winning Power microprocessor and mainframe-class technology. We're also aggressively pursuing new customers, including former HP e3000 users who are seeking alternatives with the coming elimination of that product. Most importantly, we've taken substantial pricing actions at the low end of the iSeries product line with our highly successful Operation Green Streak promotion, which offers discounts of up to 50% on eligible models and virtually eliminates interactive pricing for customers running traditional "green screen" applications. As a result, we've generated a significant number of customer opportunities in our pipeline." Does that mean that IBM is going to call every one of its 250,000 customers worldwide? That's a lot of manpower.
Yes. It is. The methodology to do that includes having IBM sales teams along with support personnel make a phone call to these customers. It's a lot of people and a lot of calls, but we're going to do it. Buell Duncan (IBM's general manager for its MidMarket Server Division) said that this division would invest $300 million in the development of the iSeries and focus on offering better pricing and packaging, re-engaging customers and developing strong relationships with ISVs. Can you expand on this?
Yes. IBM has invested $300 million in research and development. And we're also going to focus on things like pricing and customer service in order to ensure that we're meeting the needs of our customer base and the needs of future users. One initiative is to make sure we're supporting our ISVs, which I mentioned earlier, and make sure that we know what each one of our customers' current and future needs are. What is IBM's plan to encourage users to use the new technologies on the iSeries, since the COMMON users still seem to stick on old, out-of-date RPG/400?
There's a subset of our customers that appreciate the green screen for the kind of applications that they do. There's a whole other set of users out there who have seen things grow to an unmanageable level because they're adding all different platforms into their environment and it's getting out of control. We have the technology to help them consolidate back to an eServer or Intel server to be more efficient and help them to leverage the iSeries across the platform.