Over the course of next year, IBM will restructure its $13.1 billion software business in an attempt to lure more ISVs into the fold and boost software sales.
According to a report in Monday's Financial Times, IBM will divide its software group into 12 industry-specific segments, including retail, manufacturing, health care and financial services, and pump hundreds of millions of dollars into the initiative. The move seeks to take advantage of an upturn in IT spending as well as to address customer demand for vertical products.
The software group is currently made up of five major software brands -- Lotus, DB2, WebSphere, Tivoli and Rational.
Earlier this month, IBM said it would cut about 200 jobs in its software division as part of an effort to streamline operations. Those 200 jobs represent less than 1% of the company's 38,000 software division employees. The company took similar action in the software group in September, cutting 400 jobs, mainly marketing and administrative positions.
The reorganization of the company's software group is part of IBM's overall strategy to increase its middleware software partnerships. It's also a reflection of a broader trend in vertical software marketing.
This past year, IBM has aggressively pursued third-party software vendors in an attempt to carve out a bigger piece of the vertical market pie.
In April, IBM announced the "ISV Advantage" initiative, a program designed to provide midmarket ISVs with technical and marketing support to help meet the needs of SMB customers. In October, the company announced it would expand the program in an attempt to attract ISVs who serve small and medium-sized businesses (SMBs) in vertical markets.
With this reorganization, IBM is expected to continue to expand its ISV partner program in the vertical markets, as well as overhaul its sales staff and train employees to deal with specific market segments.
The move is clearly a response to a major shift in customer demand, said Stephen O'Grady, an analyst with the Bath, Maine-based RedMonk research firm. It represents an increasingly vertical focus -- delivering products that speak to specific market segments, he said.
From a sales perspective, the idea makes sense, but the move raises questions about IBM's ability to keep the software group and its product portfolio cohesive.
"This is a new emerging initiative -- there's certainly questions about how it will play out," O'Grady said."
Critics say IBM's product portfolio is already too complex and that this reorganization will just make it more so. O'Grady said that, because competitors will use that to their advantage, IBM marketing has to pull out all the stops to explain to customers how this is going to work -- and work in the best interest of the customer.
O'Grady believes that dividing the software groups into vertical segments has its risks, but he said it's just a natural and expected response to what's happening in the market. The success of it, however, remains to be seen.
"A lot is going to depend on execution," he said.
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