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Although the IBM Software Group generates billions of dollars of revenue for IBM each year, it is a nimble multibillion-dollar division. Responding to an evolution in the buying patterns of its customers, the Somers, N.Y., group late last year pushed into high gear an initiative to embrace vertical-industry customers through comprehensive middleware solutions.

Steve Mills, senior vice president and group executive with the division, met with eWEEK Editor in Chief Eric Lundquist, Executive Editor/ News Michael R. Zimmerman and Senior Editor Darryl K. Taft recently in IBM’s Armonk, N.Y., headquarters to discuss the vertical push and its results.

For more on IBM’s vertical strategy, read “IBM Scales the Vertical Industry.”

Why the vertical push?

It’s perfectly logical in terms of what the customer is doing. 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 eval processes for choosing technology. And so the affinity of our middleware infrastructure technology to line-of-business needs and requirements—the industry-specific needs and requirements—is a critical appeal point.

In a logical sense, you don’t want to leave yourself at the bottom, if you will, of the technology ladder, because that’s invariably where the commoditization is occurring. You need to continue to move toward areas that businesses see greater value add, more connection to the business problems that they have today, and those that they see as critical long term. You know&$151;strategic, transformational, needs requirements and issues. And we’ve been on this path now for some time. Our middleware strategy has been one of a focus on satisfying the need for biz process integration, you know, tie the value chain together, this whole notion of connecting the customer through your internal processes, through your supply chain. Real-time enterprise, synchronized commerce, straight-through processing. You hear lots of terms out there that different businesses in different industries use to describe the way they think about the future state of the way they want their IT environment to operate. And the way you want to support the constituencies that they have to support in their business.

And delivering on that is more than tossing a bunch of pipes, if you will, into the mix, and saying we have great low-level infrastructure and we can flow transactions. And you know, we’re good at that, and yes, we have that technology. They’re looking to solve the problem not just from a raw transport layer notion of connectivity and interoperability but also, how’s it touch on the way the business processes have to run? Are you mapped into the kinds of applications that are typically deployed within a particular industry? Do you understand what the process flows are? We talk about collaborations, and we think about the way in which a process step goes from A to B to C to D.

In a sense you’re having combinations of human beings and applications collaborate with each other. Sometimes it’s people collaborating, sometimes it’s actually applications collaborating. You know, sharing data, passing an element of a transaction from one system to the next to the next. And so all that mapping of one thing to the next, and the incorporation of interfaces and standards that are unique to different industries. So you want to sell into companies with big back-end manufacturing supply chain environments. There are predefined standard interfaces for these things, to deal with their EDI environments or how they do replenishment. And the big players often describe their own interface structures. And most participate in ecosystems that are broader than their own company.

How fresh is this focus on the unique requirements of the vertical segments?

We started that in the late ’90s. Our perspective was the value of the middleware rose as you did a better job of integrating with the way in which a business runs within an industry.

Certainly IBM has over the course of decades delivered various pieces of function that were designed to help banks, for example, deal with Fedwire or swiftwire service. Clearing system connections. We’ve tied into traditional proprietary EDI environments. A lot of this has been small bits of code, custom crafting kinds of things. Our perspective was that with Internet standards sweeping the market that this was bringing about a profound renovation of old-style proprietary environments into newer more open standards driven environment and that we could actually establish market leadership by adhering to these standards. So in retail, it’s uccnet. With Wal-Mart, it’s their AS2 interfaces. You have things like HIPPA data structure compliance in the insurance health-care industry. You have different things going on in financial services related to BOSSEL II, or a traditional wire connection for money clearing, payment systems. There are lots of them. You go through every industry, and there are lots and lots of them.

I think we started to get people’s attention in this area as we rolled out the WebSphere Business Integrator portfolio of offerings. The acquisition of Crossworlds was obviously important to adding more functionality, more mappings and adapters. Holosophix for business process modeling. A lot of this requires tooling around it. How do I instantiate this process around some set of rules? Model the process. Test the process. Make sure things work as I expect from either a functional perspective or from an economic value perspective. And then monitor the activity as it’s occurring.

So is it fair to say the strategy has been evolving, but more rapidly over the last couple of years?

Oh, there’s always an acceleration as you have more and more pieces you can do more and more things. The nature of technology is always, while it’s hard to get the base in place, the establishment of the deepest technologies down at the bottom are often a big challenge to get a solid baseline. And then from there, as you begin more pieces, you begin to discover you can adapt to different needs and requirements faster than you ever thought. You win more customer engagements, you discover more things, you build more stuff, you look at more acquisitions.

This is our view; we believe the world keeps moving and we have to keep moving. We can’t be static and rest on our laurels. And so we have a vision of continuing to widen out our portfolio. And there has been an acceleration. And the acceleration has been brought about by the wide variety of technologies we now have to meet these needs. The number of engagements we do.

And frankly the fact that the customers are very focused on this as a key aspect of the way they think about transforming their business, improving their ratios. Whether you use our on-demand term, or others’ descriptions of real-time enterprises, these ideas do resonate with businesses. And it’s not hard for a c-level executive to say, yeah, velocity is really important. If I could process things faster with fewer steps, fewer handoffs, fewer interruptions. If I had more knowledge of what was happening in my business as things were actually being processed and executing, if I could relate external factors to internal systems factors, I would probably be able to improve my efficiency. I’d have better ratios. If I had better ratios, I’d go to Wall Street, and I’d drive for higher share price.

We used to think of the horizontal, broad-based platforms as the turf of IBM. Vertical activities were always the part of IBM’s partners.

Oh, for sure. I mean there’s a big gap between the middleware and the applications. Let’s not confuse these things. We’re not delivering the application logic, the logic that’s required to do your general ledger, to do your actual production planning, supply chain planning. All the things you do from an application perspective, we’re not delivering that technology. We’re partnering with others. But as the customers continue to push on integration as a core element of any application decision, you find these things having to dovetail with each other much, much more than they did in the past.

How are your Web services initiatives resonating with your vertical customers so far?

Web services is not a mandatory requirement for integration. What Web services are all about—we love these industry euphemisms—Web services, whatever that means. So, XML is a nice thing. It’s a 40-plus-year-old idea. So, how do I separate content from structure and tag information so that I can use the tagging definitional mechanism as a common way to define everything? So it’s very much a lingua franca kind of notion. And so [it’s] a good thing to do. …

It does not in any way define the quality of service. It doesn’t define performance [and] doesn’t define the robustness and the recoverability, and there are many other aspects you have to look at. But if life gets easier because I have common interface structures brought about by Web services standards, then that’s a good thing.

[But] it’s not the universal solution to every problem.

Not right now.

Nor will it ever be. It will never be the universal solution to every problem because no tech ever is. Every time something new comes along, this is an industry that loves the next new thing. We go crazy, wow, this is great, it’ll transform the world. And everything will be different, everything will be simple and won’t this be wonderful? Right? But the hype, it’s like the Gartner hype curve thing … here you have something that’s very useful, and then you over-hype it. And then what happens is it drops into the valley of despair. The hype can never be fulfilled. No thing in the world can ever be that good.

It’s an unfair to place on any technology. And so the expectation is unfulfilled [and] you read all kinds of articles about the disappointment of this and it didn’t do what it was supposed to do. And I read an article that said that applications were going to appear spontaneously in the universe all made up of little Web services components and things would magically come together. And the world would be a wonderful place. It’s candyland. I mean, how ridiculous.

The whole notion is to keep improving on what it is you have. And these things are additive, not subtractive. It takes a long time for things to literally be subtractive from the infrastructure out there. It’s mostly an additive world, and new things come along that are a help to getting your job done a little faster. And standard interfaces and the Web services notion are part of a longer march of standards. I think today most businesses would say that versus a decade ago, they are much better off as far as standards. There are standards for connectivity, standards for displaying information, standards for exchanging formats and so on—profoundly better than it was 10 years ago.

Now, you’d say, given the way it could be, we have a long way to go. And that’s true. We do have a long way to go.

But it’s a bit like living in New York City or Boston. These cities have been around a long time. And not everything works perfectly. There are potholes in the road, and stuff breaks. But that’s the nature of infrastructure. When it’s brand spanking new, it’s usually brand spanking new. And then it ages. And you have to go in and renovate, and patch and re-splice and add on. Sometimes you get embroiled in the Big Dig.

Look, Web services inherits from obviously HTML, SGML, GML—these ideas of tags and scripting approaches have been around for a very long time.

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