Palmisano Illuminates On-Demand Plan

Palmisano also emphasized the weighty role that business partners are playing in IBM's bottom line, accounting for $2.9 billion or one-third of all IBM revenues last year, he said.

Heading into 2004, IBM is pledging to continue its investments in partners with an emphasis on the SMB market, including $100 million in new programs to attack that space. In another key partner area, IBM is realigning its programs targeted at ISVs, which Palmisano considers critical go-to-market companions, by organizing them according to vertical industry in a program called PartnerWorld Industry Networks.

But for partners to truly capitalize on the IBM business opportunity, they need to do their own due diligence, Palmisano says. That means spending the time to become proficient in on-demand skills, technologies and delivery mechanisms, and committing to the IBM philosophy around open standards and business transformation.

"It's not for the faint of heart," Palmisano said of on-demand implementations and deployment. "You had better show up and know what you are doing from a services and business transformation perspective."

The primary takeaway from Palmisano's keynote Monday is that IBM considers on-demand to be the next tidal wave of computing--one that has emerged from shifts in the IT industry, caused by the dot.com bust, that the IBM top executive believes are largely permanent.

On-demand reflects customers' desire to integrate masses of systems and applications acquired over the years in a quest to streamline their IT operations and drive business goals. From a partner perspective, this means not throwing new technology at customers for the partner's own sake, but optimizing their existing operations through standards such as Web services, Linux, grid and other protocols, Palmisano said.

Furthermore, on-demand is also about choice and flexibility with respect to IT procurement; in other words, the ability to access and buy capacity when needed and only pay for what is used. "On-demand is about horizontal integration to connect the seams between the gaps [in customers' infrastructure and business processes]," Palmisano said. "It's about linking partners electronically to gain a global cost advantage."

Greg Montague, national partner manager for KAZ Technology Services in Sydney, Australia, liked what he heard from Palmisano, calling his remarks about on-demand and its momentum "absolutely correct."

Half of KAZ Technology Services' engagements are currently on-demand in nature, Montague says. The company, which employs 2,600 people and reaps $375 million in annual revenue, is also seeing increased demand for systems integration and facilities management work, as well as managed services.

Not surprisingly, Palmisano was emphatic is positioning IBM as the best-positioned technology vendor to lead in the on-demand space, telling partners that such an approach to computing is tied to Big Blue's DNA. To buttress his point, the CEO cited statistics showing IBM's market momentum in the last year, holding tight to the No. 1 spot in the enterprise market, the top spot in its systems business over Hewlett-Packard, and No. 1 in infrastructure software such as WebSphere, Web services and integration technology. The storage market, where IBM does not lead, is a space it is working hard to claim, he says.

And Palmisano did not forget to mention IBM's booming services business in his laundry list of IBM's strengths. While Palmisano took great pains to describe its IBM Global Services and Business Consulting Services arms as a fraction of its overall business -- a "boutique" $42 billion -- it nonetheless leads the market with 9.5 percent overall share.

The message in all of this is that it is both strategic and opportunistic to partner with IBM. Kerry Grimes, COO and CFO at IBM partner RockSteady Networks, Austin, Texas, says that on-demand still needs some refinement in his estimation.

However, Grimes said he backs the model completely, particularly for grid computing and as a pillar for application integration. RockSteady is creating a visual media gateway using on-demand technologies and will spend $2 million this year on such initiatives.

If partners like Grimes are any indication, IBM has placed its bet in the right place. Palmisano acknowledged today that the initial message around on-demand, some 18 months ago, was not articulated as clearly as it could have been.

"It was confusing when we first rolled it out, but we have worked hard to create references," he says.

As part of his contention that the industry is shifting, Palmisano also offered a defense of IT outsourcing, calling it only fair that countries overseas have an opportunity to experience economic development. The transfer of jobs overseas, rather than deflate the U.S. market, should be seen as a chance for workers here to take the leap into the newer, on-demand related skills that IBM holds so dear, such as Linux and new programming model, he said. IBM plans to back this effort with something called the Human Capital Alliance, a $25 million skills retraining fund that will be made available to Big Blue employees and partners who face job displacement.