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IBM sees a big future in little markets

Big Blue is looking to the developing world to fuel its growth, but it may have its heft working against it, says CNET Blog Network contributor Matt Asay.

It's interesting to see the mammoths of software looking to emerging and SMB (small- to medium-size business) markets to fuel big growth in the future. The traditional enterprise market is saturated, forcing them to move on to forage for food. The question is, can these big companies succeed on leaves and grass?

IBM is the latest to make its move, as the Wall Street Journal reports today. IBM is targeting developing markets due to higher growth rates:

In a memo to IBM's top executives, Chairman Samuel J. Palmisano said IBM will establish a new organization, reporting to sales chief Douglas Elix, to target markets in Southeast Asia, Latin America, Eastern Europe, Africa, and the Middle East. Mr. Palmisano said many countries in these regions have economic and technology-spending growth "running well ahead of the global average--and we know how to capture it."...

Mr. Palmisano said the initiative will build on IBM's recent success in the "BRIC" countries--Brazil, Russia, India and China--where sales have grown at a 22% compound annual rate in the past three years. He said those four countries accounted for one percentage point of IBM's 4% sales growth last year. Jesse Greene, the company's vice president, financial management, recently said IBM expects revenue in India alone this year to approach $1 billion.

Bob Djurdjevic, of Annex Research, a market watcher in Phoenix, said "the emerging countries are just going gangbusters" in adding computing power. While individual, developing countries don't represent big markets, "$100 million here and $100 million there all adds up," Mr. Djurdjevic noted. "IBM just wants to make sure it gets more than its fair share," he said.

Easier said than done, especially as IBM, SAP, Oracle, and others are competing with three major forces "from beneath" in these markets, forces more closely tuned to the needs of low-cost, wide distribution markets: open source, software as a service (SaaS), and Microsoft. IBM is an exceptional company but it may have its heft working against it in going small.

Still, of the big ecosystem vendors, IBM may be particularly well suited to morph to the needs of these developing markets. IBM can give away the software and sell hardware or services, or any combination required to meet budgets. Its full arsenal may well meet the budgeting needs of these markets.