IBM broadens its hosted-software effort

The Armonk, N.Y.-based company introduced a set of initiatives aimed at helping its independent software vendor, or ISV, partners address a growing trend among customers--the adoption of hosted applications, wherein applications are delivered over the Net as needed, rather than installed on company systems.

Noting that demand for hosted applications is growing, IBM cited recently published numbers from researcher IDC that showed the so-called "software as a service" market reached $4.2 billion in 2004 and estimated that the segment could exceed $10 billion by 2009.

IBM generated more than $1 billion in business related to hosted applications--what it also calls "on-demand" software--last year, company officials said. Big Blue also recognizes that developing the hosted-applications market could lead to increased demand for IBM's middleware, server and storage products in the future.

Hosted tools typically are Internet-based versions of business applications that were originally installed by companies for use in-house. Among the advantages promised by hosted-tools services is that software can be installed relatively quickly and applications-maintenance issues can be resolved on the fly by the vendors.

Some companies, including hosted customer-relationship management (CRM) specialist Salesforce.com, also offer customers the option to pay a monthly fee to license the applications they use rather than pay a lump-sum fee for them up front.

With its latest initiative, IBM executives said, the company is further blending its efforts to support hosted-software ISVs through its general-partner programs. That strategy will let the partners access a broader range of resources while it also helps those ISVs not yet marketing hosted applications services to explore opportunities for doing so.

"We're taking what we've been doing over the last two years with hosted ISVs, and bringing that into the mainstream," said Scott Hebner, vice president of marketing and strategy at IBM. "We're providing new resources focused on helping ISVs respond to customer demand for hosted software, and also, as a combination with more traditional models, (focused on helping) partners move in the direction that suits them best."

The specific tools introduced by IBM for its partners include an effort dubbed the "Software as Services Showcase," an online directory of hosted applications already marketed by the company's partners. Hebner said IBM's hosted ISVs have already launched some 40 different applications aimed at different business processes and vertical markets. The directory will help partners co-market each other's offerings and further convince customers of the merits of the hosted model, Hebner said.

IBM is also launching a series of workshops to help its partners figure out the best ways to price software as a service, and to help them understand how different pricing models could affect ISVs' bottom lines as they move to introduce additional hosted tools. A second workshop will touch on the best technical approaches to creating and marketing the software services.

Perhaps most important, IBM is giving these ISVs the same financial incentives it offers more traditional partners: cash to help sell, market and build consulting practices around the products. Much of the expertise offered through the various programs was gained through IBM's Software as a Service Partner Council, which brought together 100 of the company's top partners to develop strategies for using on-demand software products and services.

"As you step back and think about traditional software companies and how they need to transition from a version release with a onetime license fee to an online service, they need to transform their business models and technical code. Hopefully this new effort helps them understand how to do this," said Michael Riegel, director of the Express Services Business at IBM's Global Services unit.

Industry watchers lauded IBM's move and said that in addition to aiding hosted applications vendors, the partner program could strike a blow against rivals such as Microsoft and SAP, which have not moved as quickly to embrace Web-based business software services. Laurie McCabe, analyst with New York-based AMI Partners, said IBM has taken an active role in supporting hosted applications since at least 1999 and that the work is paying off now.

"They've had many programs to advance the business, but a lot of that energy has been focused on technical support to help ISVs get their applications architected correctly," said McCabe. "Now they're making progress in helping with the marketing part of it, and that could really help some companies get more visibility and build credibility with new customers as the hosted trend gains added momentum."