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Mark Ouellette is Vice President of Worldwide Small and Medium Business Software Sales at IBM. He is the executive responsible for all software sales activities and results pertaining to the $40 billion middleware SMB software marketplace. To meet IBM’s financial and market-share goals for this strategic segment, Ouellette sets coordinates marketing activities, product solution packaging, and development of the company’s channel business partner strategy. He has been with IBM in various marketing, financial, and channel positions since 1977. In two lengthy and wide-ranging exclusive interviews with Ziff Davis Channel Zone contributor Joel Shore, Ouellette comes back to a central theme: the only way IBM can achieve widespread succeed in the enormous SMB market is by giving its channel partners a cornucopia of products and marketing support.

How important is the SMB market to IBM?

About 20 percent of IBM’s total worldwide revenue comes from SMB. It’s the fastest-growing sector of IBM’s business. SMB is where the preponderance of IT spending will occur in 2004.

SMB covers a lot of territory. How does IBM segment the market?

IBM sees three distinct sub-segments in the overall SMB market. One is companies with 1,000 to 3,000 employees. These companies have in-house IT staffs and knowledge. IBM’s traditional technologies and solutions play well here. Second is the low end of the SMB market, companies with fewer than 100 employees. These are usually client and peer-networking environments; we don’t really see it as much of a server-based environment. That segment is not one where we are spending much. Then there’s the middle segment, companies with 100 to 1,000 employees. According to [market researcher] IDC, 54 percent of all IT spending — not just SMB, but all IT spending — is here. After years of reluctance to spend, we expect to see double digit growth; these companies are now catching up and making the IT investments necessary to compete and grow. This is where IBM is concentrating its efforts.

It’s a huge market.

And growing fast. Predictions are that overall SMB IT spending will be $300 billion in 2004, growing to $695 in 2008. That’s more than the gross domestic products of most countries.

Was IBM prepared for SMB?

There’s a perception that IBM wasn’t fully prepared for SMB, that it paid more attention to its traditional enterprise market.

Well, as I said, IBM gets about 20 percent of its revenue from SMB, so I wouldn’t say that we were ignoring this market. It’s fair to say that we did not have a clear commitment over the long term to create a specific set of product offerings and surround them with go-to-market support. That has changed drastically with our Express Portfolio.

Before we get into the details of the SMB channel programs and products, what’s the key message for solutions providers and systems integrators?

At IBM we call them Business Partners. Without them, we wouldn’t have much of an SMB business. IBM’s message is pretty simple: We’ve made a clear commitment to our Business Partners. We’re in this for the long haul. Speaking for the software side of our SMB efforts, we’ve launched several dozen products in the last two years. We’re investing significant dollars in marketing efforts. We have the software development tools and marketing tools that Business Partners have been asking for.

So what does IBM offer?

What we don’t offer is applications. That’s what our partners do. IBM provides products that Business Partners use to develop solutions for SMB. We provide marketing support and demand generation, and awareness through advertising. And we provide partner strategies for developing industry-specific vertical solutions.

Ouellette talks software

Talk about the actual software products.

I could talk about them for days. We have a host of middleware products that are predicated on a set of design criteria. This is Express Portfolio. We launched the first product in [November] 2002; the WebSphere Portal Express. It’s perfect for building portal solutions that fit within the budget of an SMB.

What’s the thinking behind Express?

Ouellette: Look at SMBs. Customers say IBM is too complex and expensive; that they don’t have an IT staff. They’re looking for out-of-the-box, easy-to-deploy solutions with a demonstrable return on investment. We’ve identified 11 attributes that came from the market — that customers told us we need to do to be relevant.

CZ: But these customers aren’t really looking for products, they’re looking to solve problems.

Ouellette: Exactly. These customers don’t buy middleware, many don’t even know what middleware is. They don’t buy products and they don’t by technology. What they do buy is solutions. And that’s where our Business Partners play a pivotal role. It’s our channel partners who take IBM’s middleware products and build real-world business solutions. That’s not something that IBM does. It’s our partners that are building Express-based solutions for particular industries or vertical applications.

CZ: What is a typical Express product and what makes it compelling to the channel?

Ouellette: It’s not just one product. We have an entire Express Portfolio that we’re continually adding to and refining. Here’s an example. We announced DB2 Express in June [2003]. It’s a fully functional industrial-strength relational database on one CD. It takes 15 minutes to install. It’s self diagnosing and self-optimizing. The partner uses this as a foundation for developing all kinds of solutions.

Where’s the ROI?

CZ: What about the demonstrable ROI you mentioned earlier?

Ouellette: Beautiful. First, the customer doesn’t need to have a database administrator on staff. That’s a very expensive salary that’s avoided. And DB2 Express has been priced to sell; we’re talking about $495 per server and $99 per user. That’s much less than Microsoft’s pricing [for SQL Server]. And it runs on Windows or Linux servers.

CZ: You keep referring to “Business Partners.” Who are they?

Ouellette: They’re called lots of different things, solution providers, systems integrators, or ISVs (independent software vendors). Some are very large, but many are small, as small as 35 people sometimes. They’re not just resellers, but ISVs and regional systems integrator that take middleware and build applications and go to market with us. Some have relationships with Microsoft, and some do not. An important thing for us is that many are new to IBM. Our message, that IBM is no in the applications software business is resonating with these partners. They see us as a partner, not as a competitor. We are not in the apps business.

CZ: How does an interested developer become a Business Partner?

Ouellette: We have an organization within IBM that identifies ISVs as possible partners. And, of course, we have the PartnerWorld for Software Web site. Any solution provider, value-added reseller, integrator, consultant, service provider, or education provider can go there are find out the requirements for becoming a Business Partner and the benefits of being in the program. Once they make contact with us, we’ll pick it up from there.

CZ: But there must be a point below which you’d consider a potential partner just too small.

Ouellette: Not really. Small companies can do great things. And they can move a lot faster than big companies. For these small partners we have the ISV Advantage program. We go out and select ISVs we see as important for vertical segments. Some of these are very small and even don’t have a sales force. But they need someone to partner with, someone who can give them a sales force. We can do that.

CZ: What does IBM require from these ISVs?

Ouellette: Well, they need to build applications using IBM middleware. If they are willing to make a specific commit to IBM, they get co-marketing dollars and dedicated go-to-market resources. At end of 2003 we had 150 ISVs signing onto the program. We also have the Value Advantage Plus initiative. If you are a solution provider, local ISV, or regional systems integrator, and the majority of your revenue comes from the sale of applications they develop or services they perform, we will provide support in local markets supporting SMB. We launched this in May [2003] and already have more than 1000 partners signed up and the program is generating revenue. The partner has to contribute a minimum of 40 percent value add and has to provide customer success reference accounts.

What to expect in 2004

CZ: What can Business Partners expect to see in 2004 that they haven’t seen before?

Ouellette: They are going to see a better level of consistency in IBMs commitment to the SMB market. We’ve been talking about this for a long time. It will be sustainable and aggressive. We’ll reiterate how important SMB is to IBM. Expect to see announcements of new offerings and enhancements to existing programs. And we’ll be making higher commitments to marketing and advertising. We’ll be talking about these programs at our annual worldwide PartnerWorld conference in February.

CZ: Given the breadth of IBM and its very deep pockets, don’t you expect to see some overlap with the channel that will create conflict with your partners?

Ouellette: No one is perfect. I am a little leery about possible situations with IGS [IBM Global Services]. We are working through our services strategy with IGS to minimize those situations.

A parting message?

Well, it’s a pretty clear message: demand generation, awareness, advertising, accessible products for partners, and strong go-to-market support. We are launching aggressive ad initiatives that you’ll be seeing soon. If a solution provider is looking for new opportunities, our SMB programs and Express Portfolio products make a compelling case.