IBM will spend $1 billion to challenge Microsoft

Wednesday, March 3, 2004

SEATTLE POST-INTELLIGENCER STAFF AND NEWS SERVICES

IBM Corp. plans to invest $1 billion this year to help developers create programs for specific industries, in a bid to take market share from Microsoft Corp.

IBM, the second-largest software maker, will help sell the new programs and provide companies with technical assistance, including free development tools, the Armonk, N.Y.-based company said yesterday. The software will be geared toward small to medium-size companies with fewer than 1,000 employees.

The investment steps up competition between Microsoft and IBM for small and medium-sized customers. IBM also has spent $1 billion to make its hardware and software work with the Linux operating system as a low-cost alternative to Microsoft's Windows.

"It's a good competitive move against Microsoft," said Steve Graham, an analyst with market researcher IDC, which is based in Toronto. "Companies are looking for technology providers who really know their business."

Having the backing of IBM will help the software developers, which tend to be small companies, reduce costs and gain credibility in their markets, Graham said.

IBM is targeting companies in banking, financial services, health care, life sciences, retail and telecommunications. Customers prefer software applications designed for their industry rather than tailoring more general programs for their needs, IBM said. Applications are programs that perform tasks such as accounting and payroll. IBM quit making such software in 1999.

Microsoft is "an important player in the marketplace," acknowledged Buell Duncan, IBM's general manager for independent software vendor and developer relations, during a conference call yesterday.

"But increasingly we are seeing from our customers and hearing from our partners that it's more and more about security, it's about scalability, and it's also about choice -- that customers want not to be locked into a single platform," Duncan said.

"I would say he needs to actually go talk to midmarket customers," countered Mark Young, general manager for Microsoft's platform strategy and partner group, when told of Duncan's comments yesterday. "Our satisfaction in the small- and midmarket space is quite high, both with our products and with our ISVs."

Young explained that Microsoft and the independent software vendors who write for the Microsoft platform focus not only software for specific industries, but also on products for horizontal markets, across a range of industries. Among other advantages, he said, Microsoft has far more software vendors making applications for its platform.

"The scale is just fundamentally different," he said. "To cover the complexity of both geography and specialization in the small and midmarket, you need that breadth."

This report includes information from Bloomberg News.

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