Seizing on a growing trend among small and large enterprises alike, the IBM Software Group has spent the better part of the past year quietly executing a far-reaching plan to create bundled middleware solutions for specific vertical industries.
The effort, which officials said has been loosely ongoing since the late 1990s, came into sharp focus late last year when Steve Mills, senior vice president and group executive of the IBM Software Group, made the vertical-solution push a call to arms internally.
“It’s perfectly logical in terms of what the customer is doing,” said Mills in an interview here late last month. “The buying patterns and interest and behaviors of customers is something you always have to be watchful of. And what we’re trying to do is to ensure that the appeal of our technologies, which is a statement of what the technology is, combined with how we bring it to market, matches the way that customers are thinking about their business problems and how they go through their evaluation processes for choosing technology.”
Under Mills’ direction, the division has crafted more than 60 vertical product solutions; aligned itself more closely with other IBM groups such as IBM Global Services, as well as with sales and distribution groups for better vertical coordination; and launched the PartnerWorld Industry Networks program to enlist third-party participation in solution creation, among other things.
The initiative seems to be paying off. IBM officials here said the effort is responsible for bringing in thousands of new SMB (small- and midsize-business) customersthe kind that offer the greatest growth opportunities.
According to observers, IBM has a big head start on competitors.
“What makes IBM’s approach particularly noteworthyand particularly difficult for competitors to matchis IBM’s ability to use the industry-specific knowledge that resides in the IBM Business Consulting Services group to guide the development of vertically oriented middleware components,” said Dwight Davis, an analyst with Summit Strategies Inc., in Boston.
Mike Gilpin, an analyst with Forrester Research Inc., in Cambridge, Mass., agreed. “I think IBM’s move to verticalize their middleware go-to-market strategy is among the earliest and most successful among the major general-purpose application platform vendors,” Gilpin said.
Next Page: Competitors rely more on partners.
As opposed to IBM, analysts say competitors such as Microsoft Corp. rely more heavily on partners to provide the industry-specific part of the solution.
Since January, the IBM Software Group has announced 62 industry-specific middleware solutions across 12 industries, said Marie Wieck, general manager of industry solutions and business integration for the group. In all, IBM is targeting 17 primary industries but has, to date, produced vertical middleware solutions for 12, Wieck said.
“Largely, it was services and sales that had the industry orientation,” Wieck said, but over the past nine months, the IBM Software Group has been rolling out solutions industry by industry, she said.
The 12 industries for which the 62 middleware solutions have been developed are health care, life sciences, telecommunications, energy and utilities, government, retail, consumer products, electronics, automotive, banking, insurance, and financial markets.
At the core of the vertical focus is the IBM WebSphere platform, Mills saidspecifically, WBI (WebSphere Business Integration). “We started to get people’s attention as we rolled out WBI,” he said. The WBI product came together using IBM technology combined with technology from the company’s acquisition of CrossWorlds Software Inc. and Holosofx Inc.
Some examples of IBM middleware solutions include its Middleware Solution for Energy & Utilities Industry Regulatory Compliance, Middleware Solution for Healthcare Markets Clinical Decision Intelligence and Middleware Solution for Government Collaboration.
In a new offering, IBM has enhanced its Middleware e-Forms and Records Management Solution for Government to include end-to-end security using IBM Tivoli secure identity and VeriSign Inc. authentication software.
The city of Windsor, Ontario, used IBM’s Cityscape Portal Solution-City Edition to build a community portal. IBM developed the package with its WebSphere Portal and Lotus Collaboration products such as Lotus Instant Messaging and Lotus Team Workplace. Today, the 280,000 residents of Windsor and nearby Essex have online access to community information and services.
“We see the technology as an enabler. This was the most advanced tool we could find that … would [let us] grow as our users became more sophisticated using this portal,” said Kristina Verner, project officer for Windsor.
Next Page: ISVs: A key part of IBM’s vertical strategy.
In addition to WebSphere, a key part of IBM’s vertical strategy is ISVs. Recruiting them to build applications that complement the company’s vertical middleware is also an ongoing effort, said Mark Hanny, IBM’s vice president of ISV alliances.
“We are very, very dependent upon providing total solutions to customers … and we’re spending about $1 billion when you look at what we do with ISVs this year,” Hanny said.
To that end, IBM in March launched the PartnerWorld Industry Networks program, which offers technical, sales and marketing, and business insight assistance to ISVs across nine industries. Earlier this month, IBM added the automotive industry to the list of markets covered by the PartnerWorld program. The others are health care, life sciences, telecommunications, government, retail, banking, insurance and financial markets.
“We’re up to more than 1,400 [ISVs in the program] since we announced in March,” Hanny said. “We’re seeing explosive growth in emerging markets such as China. And another thing is just an unbelievable interest in Linux.”
Another big play is SMBs, Hanny said. “And in the SMB space, we have an initiative called SMB Advantage, and 73 to 75 percent of the solutions are Linux-based.”
In addition to the 1,400 ISVs involved in the program, Hanny said IBM has more than 60,000 software partners offering more than 30,000 IBM-related solutions to their own vertical-industry customers.
IBM partner DST Inc., based in Mission Viejo, Calif., has delivered an IBM industry-specific, middleware-based solution to Seattle Automotive Distributing Inc., in Seattle.
“The technology DST delivers provides us with unbeatable flexibility to integrate multiple operating systems to best serve each of our customers,” said Tim Dickison, general manager of Seattle Automotive Distributing. “Their expertise has provided us with a comprehensive, easily tailored system for retaining existing customers as well as attracting new business. They are miles ahead of the competition.”
Jean Blackwell, vice president of business development at Bristol Technology Inc., in Danbury, Conn., another IBM ISV partner, said that Bristol bundles IBM technology with its TransactionVision solution and that its stack is IBM middleware. Blackwell said the solutions Bristol sells usually include IBM’s Tivoli systems management software.
“We sell IBM boxes with all the Express versions of the software running on them,” Blackwell said. “We get a lot of benefit from the upfront investment, like the innovation centers. But we also see IBM as an execution partner.”
But it’s taking more than just thoughtful software solutions, smart partnerships and tight internal integration for IBM to pull this off. It’s also taking a coordinated technical support effort. For that, the company turned to Lauren States, vice president of sales support for the IBM Software Group. States is responsible for supporting the industry solutions and, as such, oversees a force of 3,000 software architects and “deep product specialists” who support customers.
“That’s the technical force we’re building in IBM and we’re maniacally building in the Software Group,” States said. She said her group has more than 400 professionals who work directly with ISVs.
Going forward, IBM is implementing a new role for its sales support staff. “It’s a hybrid role between our architects and deep product specialists and will be called ‘solutions specialist,’ where you bridge into being focused on solutions,” States said.
According to Forrester’s Gilpin, IBM’s moves in the vertical space are trend-setting and productive. “The IBM move is not a survival strategy, obviously; rather, [it] aims to increase market penetration and grow share [and revenue], and I think it’s already showing some successful results in those areas on which they have focused,” Gilpin said.
To be sure, the vertical push is dramatically impacting the software group’s customer baseespecially SMBs. According to Jim McDade, IBM’s vice president of worldwide SMB, during the first half of this year IBM “pulled in 12,000 new SMB customers … and we think we’ll surpass that 12,000 in the second half.”
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