IBM's end-of-the-year surprise acquisition of major development toolmaker Rational tops a laundry list of critical business decisions the computing giant made this year. From announcing it would combine its storage and server groups to acquiring PricewaterhouseCoopers Consulting to selling its own hard disk-drive business, IBM is in the thick of strategic change.
Yet analysts say that announcing the initiatives was the easy part. The execution of these plans in 2003, particularly the company's whopping $10 billion investment in its computing on-demand movement, will be what separates the men from the boys.
The cornerstone of these initiatives is Sam Palmisano, who took over for long-time chief executive Louis Gerstner in March and will replace him as chairman at the end of this year.
It was Palmisano who in October unveiled IBM's on-demand computing strategy, which includes everything from allowing customers to pay for only as much computing as they need to helping streamline their supply chains.
Computing on-demand is a strategy intended to deliver computing resources the way a power utility doles out electricity. The next phase in IBM's e-business strategy, on-demand computing's idea is to integrate users across the company with key partners, suppliers and customers. Computing on-demand includes IBM's most promising technologies: Web services, open standards, grid computing and self-healing systems.
Big Blue said it will spend billions to deliver on-demand computing -- and much of that investment will go toward marketing and sales, education, acquisitions, research and development, hosting facilities, and on-demand design centers where customers can test the new concepts.
We're talking one major investment.
On-demand computing, said one analyst, is clearly IBM's most significant initiative and in the long term could radically change the way IT operates.
"This is the first fundamental change in backroom architecture in years," said Frank Gillett, principal analyst at Cambridge, Mass.-based Forrester Research. "This won't have the effect on the industry like, say, client-server [technology] did, but it will change dramatically the way the data center is run during the next decade."
Today's technologies are fragmented and isolated and don't work together, he said. "As a result, they're very hard to manage and very expensive," he said. Computing on-demand is intended to address that, said Gillett.
There are several approaches to computing on-demand, or organic computing, as Forrester has dubbed it. This type of computing, in theory, will pull all the major elements -- network, storage, servers, software and management software -- into one flexible, interoperable and automated infrastructure.
An extra piece to this concept is that IBM will give users the ability to rent the capacity or buy compute cycles on demand. This component of it, however, isn't likely to happen right away, certainly not in 2003, said Gillett.
However, on-demand computing isn't IBM's brainchild. In fact, others have been working on the concept for a number of years, including Hewlett-Packard and Sun Microsystems. IBM's success in selling computing on-demand isn't a sure thing, said Gillett, but it's pretty well-positioned just the same.
"IBM wasn't the first to the party," Gillett said. "IBM is getting all this attention because they threw $10 billion at it. They, and others, have been working on this for years and are now they're pulling all the pieces together."
In addition to the big vendors, there are a bunch of small vendors chipping away at these problems, Gillett added. "The big shoe that's yet to drop is what Dell and Microsoft will do," he said.
Not an overnight solution
While IBM's efforts to move toward computing on-demand infrastructures is indeed ambitious, few in the industry doubt that Big Blue will see this through. Some say that by 2007, it'll be the standard for computing environments.
"But none of this is going to happen overnight," said Mike Kahn, chairman of the Clipper Group, a Wellesley, Mass.-based research firm. "This is a first big step in the widening of the IT mindset. This is not going to happen on Jan. 1. We're talking over a couple of years. That'll take a lot of energy in 2003."
Indeed, in the coming year, IBM will be introducing new products that will play into computing on demand.
"You won't see any on-demand widget," said Craig Hayman, vice president of strategy for the IBM Software Group. "What you will see from us in 2003 are capabilities across a set of products that will enable computing on-demand. We're going to be adding functions to products that will make [on-demand computing] easier to do."
Hayman said that a number of businesses, such as Web auctioneer eBay, currently use products from IBM outfitted with on-demand capabilities. eBay uses WebSphere Integration software, but there are also a number of other products that have been enhanced with new features in recent months, such as Lotus Sametime, an instant messaging and collaborative applications suite, and DB2, IBM's database suite, that will help businesses implement on-demand computing.
"But these products aren't just for new businesses, like eBay," Hayman said. "IBM is going to be introducing products in the next several months that will make it easier for an older company, such as businesses in the telecommunication and financial spaces, to implement on-demand technology.
IBM has also made a number of acquisitions (seven have closed in 18 months) specifically because of what they bring to on-demand computing.
"These companies were selected because they let us get to this vision more quickly," said Hayman. Not all of the acquisitions are as huge as IBM's purchase of Rational, but they are still vital to the company's strategy.
Hayman cited smaller vendors such as Holosofx Inc., a privately held El Segundo, Calif.-based provider of business integration software, and CrossWorlds Software Inc., a Burlingame, Calif.-based company that specializes in integrating internal and external operations and extending them to the Internet, as being significant complements to the overall strategy.
"These are smaller vendors, but when you look at it in the context, they're critical," he said.
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