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Let the games begin. IBM chairman and CEO Sam Palmisano is pulling no punches when discussing Big Blue's goal to push further into the midmarket—in effect tossing down the gauntlet to rival Hewlett-Packard.
Speaking exclusively to VARBusiness earlier this month at PartnerWorld in St. Louis, Palmisano laid out a strategic vision that calls on partners to help IBM carve a bigger share of the midmarket—companies with 100 to 999 employees—and drive new opportunities around technology areas such as collaboration, virtualization, service-oriented architecture (SOA), blades and consulting services.
"We're investing heavily to boost our midmarket business through partners," he said. "We're pushing our territory sales model, our Express offerings, ISV partner applications. We're going to need partners to do it all in this space. It goes way beyond the role of a distributor or fulfiller of product."
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During his keynote at the event (the first in three years), a gracious Palmisano thanked partners for their contribution to IBM's success in 2006, when the company posted record profits, earnings per share and margins larger than they have been in a decade, he said.
Palmisano issued one caveat, though: U.S.-based sales were not up to par when compared with a flourishing international business in 2006, though he did note the company's leapfrogging of HP in the storage market, to the No. 2 spot behind market dynamo EMC.
At the end of the day, however, Palmisano said success is about profit. And sustaining profitability means expanding IBM's footprint below the enterprise watermark.
"Everyone loves to obsess on revenue, but profits and cash flow at the end of the day are what sustains," he said, noting that IBM's profit pie is better balanced across its segments today than in previous years, with 40 percent coming from software, 37 percent from services and 23 percent from systems and financing.
In the only interview granted to U.S. press at PartnerWorld, Palmisano told VARBusiness that IBM values the global midmarket at close to $500 billion, and it's growing at 6.5 percent annually. In the next three years, IBM's midmarket sales are poised to surpass its financial services business, which has been Big Blue's leading revenue generator for the past 50 years, he said.
Today, about half of IBM's midmarket sales go through partners, Palmisano said, and the company is aiming to increase that percentage through its existing channel and by recruiting new partners to the fold.
All this means taking on HP, which has proven a formidable foe. "It's a strong task, because HP is the incumbent here [in the midmarket]," Palmisano told VARBusiness. "But you can't assume it will just remain that way."
Palmisano's contention is that the midmarket customer has the same IT solution needs as companies in the enterprise space, where he says IBM is the "undisputed leader."
"They want what the large guys want," he said, prior to his keynote. "If we can give them that, and use partners as the conduit, we'll get there [with respect to HP]."
This might not be such an easy task, particularly when it comes to wooing away partners that sell HP to the midmarket. HP CEO Mark Hurd hasn't been shy in asserting that he perceives IBM as vulnerable there. For partners, in many respects, reticence to cast their lot with IBM is more perception than anything else; they view IBM as too difficult to navigate or too focused on the enterprise.
NEXT: Three keys to IBM's strategy.
