Since 2000, Steve Mills has shepherded the IBM Software Group as senior vice president and group executive. The group has been one of the bright lights for IBM recently, showing 9 percent revenue growth for the first quarter year-on-year.
But Mills is looking to do more, while contending with a strong field of rival platform players including Microsoft and Oracle. He sat down Monday night at IBM's PartnerWorld event with VARBusiness executive editor Carolyn A. April and drilled down on several subjects, including:
1. The biggest threats to IBM's software business -- and by extension, the channel.
I don't come at the market thinking about competitive threats. The issues driving everyone today are more about customers and where they are getting their criteria for buying technology. It's a buyer's market, not a seller's market. For instance, governance has been put into every customer's procurement perspective. They are trying to maximize the cost of every [technology] acquisition.
We have moved from knee-jerk-buying to a business-driven purchasing model. That's the biggest impact on partners ... the need to demonstrate ROI, deal with increased sales cycle, proof of concepts. The intensity and time duration and number of hurdles to clear to build the business has grown substantially. This is away from selling in a classical sense. You now need to prove value. And you can get loyalty in this market; customers will come back for more. They are obviously tied to vendor capability and have become more sensitive to who can deliver. It's raising the bar on skills. It's a big shift for the distribution side of the house. The pressure is on that first-tier distributor model.
2. Consolidation in the software market and what it will do to the industry.
Last year, we had as much venture money flowing into software business start-ups as we did in late '90s, so I'm not seeing us having fewer companies when they are counted up. But the M&A phenomenon will continue ... Big companies are going to get bigger. There's a phenomenon of condensation that goes to very bottom.
Consider microprocessors. Who do you have today? Intel and the IBM Consortium, which includes AMD. Same with operating systems, databases; there used to be more, and now there are fewer. Unlikely you ever get to just one; the market doesn't like one -- it's a bad number. But it's really a function of the cost of entry ... the microprocessor business is never going to have tons of players because it's just far too expensive. But at other costs of entry, you can have so many companies it's too hard to count them all. There will be a whole variety of point providers in areas that are tool-driven. In labor-related spaces, there will be an explosion of companies.
3. IBM's Express portfolio for SMB, and whether it been a success.
Express has opened many doors for us that would not have gotten opened any other way. They are a fast time to value and provide a simplification that has enormous value to demonstrate a rapid return for customers. For many of our partners, they will demo a capability in Express and use it as a door opener to convince the customer of the full-function product, essentially upsell.
4. If he's satisfied with roughly 30 percent of IBM software sales going through channels today.
[That percentage] needs to be bigger and bigger. Clearly to think we would be dramatically larger than we are today and operate in the same ratios of direct to indirect, you'd come up with having to double our direct field force. It's not to say we are not looking to grow that. But it's a long path in building up a force to do that. We'd like to tap into different types of partners and their capabilities, and figure out how to entice then to get into our programs. We are also recruiting new partners into the fold.
5. Whither Web 2.0...
Web 2.0 is applicable for virtually anything in terms of in-house development and applications. The whole point is that information from any source can be combined in various ways to serve those information-intensive types of applications. I can change it, modify it; it's a very easy assembly of parts. And I don't have to know what the sources are. I can have no idea. There are lots of example of customers applying these constructs behind the firewall because it makes for easy, informational app development facilitated by high bandwidth and AJAX, which has provided an added level of programming.
6. The state of the Linux market and Oracle's play there.
In the late '90s when IBM got into Linux, we had SuSE and Red Hat, and we still have them today. There are smaller players, but that landscape has not changed that much. It's easy to collect the pieces to get a [Linux] distribution going. To do something at scale -- and make money at it -- is very hard. And Oracle is finding that out now. If you are the open-source OS distributor, you get a disproportionate number of calls on every kind of problem with the server box. Novell and Red Hat have a support structure to deal with this, but Oracle is not used to doing this. They want to serve only their own products, not anybody's else's. On mainframe, for example, IBM takes all the support calls.