IBM software sticks to the plan for 2010

IBM's software business contributes $20 billion of IBM's revenue and 40 percent of its profits. Suffice to say, it's an important part of Big Blue's market strategy to ensure that the software division performs at or above expectations every year.

Steve Mills, senior vice president and group executive, joined IBM in 1974 and has helped shape the software business as its grown to more than 50,000 employees, including 25,000 software developers and 15,000 sales and technical support personnel in more than 150 countries. That total includes the products and personnel from the more than 50 companies IBM has acquired since 2000.

In 2009 alone, IBM acquired no fewer than five companies: Lombardi, a privately held provider of business process management (BPM) software, data discovery software firm Exeros, database security firm Guardium, security provider Ounce Labs, and analytics provider SPSS.

The company also launched a number of cloud-oriented products and services in 2009, including a new lab in Hong Kong, a Cloud Academy program designed to help educators and students pursue cloud-computing initiatives and better take advantage of collaboration technology in their studies; and a number of additions to the LotusLive hosted collaboration service.

In an exclusive interview with CNET News, Mills shared how the company is looking at the technology landscape in 2010 and beyond.

Question: Software strategy is obviously an important part of IBM's business model. How long of a time-to-market horizon does IBM look for with new software products?
Mills: We tend to look at product groupings and product families--customers don't use a single product. Enterprises are looking for complete solutions even if they don't buy them all at one time. That means that we're looking for leverage in software we create or acquire--how do the products complement each other and how can plan ahead for what customers need.

As you probably know, IBM is big on process (laughs). The software business is no different, and we have a method to how we develop markets: customer, volume, revenue, and profit. You have to set the baseline to figure out how the product fits into the marketplace, you learn this from talking to customers. Time to market and rapid iteration are important aspects that come into play in relation to the other components but you always learn more in the market from customers than in the lab.

When we look at how well a piece of software is doing, as well as its potential, we look at volume of customers, industries, installed base, etc., and what's the trajectory of the installation. Growth objectives are unique to each product, and you rise on a series of plateaus. You have to fill the gaps that inhibit the growth. And it's not always obvious. We pay a lot of attention to our customers and also the trends in the market.

How does cloud computing play into your technology focus areas?
Mills: Cloud computing is a transformative part of the Darwinian IT phenomenon. Many companies are not interested in operating their own infrastructure as they don't see it as a competitive advantage. In which case they want to get the job done at a lower cost. Businesses realize they can grow because of IT and they want to continue to use IT to keep things growing, but that doesn't mean they need to own and manage every piece of their infrastructure.

Companies like American Express, Salesforce.com, and ADP are great examples. We see those types of system designs and customer interactivity as common models. IBM has long offered managed business process services and supported other big enterprise services.

These offerings make logical sense, but they don't always solve every problem. The hybrid public/private model is very appealing to our customers and not dramatically different than using a hosting provider.

Not everyone will be comfortable with the cloud model--it's all part of a continuum. There will be Salesforce.com on one hand, and on the other customers that run everything behind the firewall. Success doesn't mean that corporations will push everything into the cloud but the inherent cost-benefits are there and more companies are interested. That's part of the evolution.

How do you look at open-source projects/products/companies?
Mills: The hybrid companies like Red Hat have interesting models for open source. They take all the code and put it together for you, but we tend to look at open source as building blocks for larger solutions. IBM ingests a lot of open-source code and we provide a huge amount of development and engineering expertise to the various projects that we support--like Linux and the Apache server.

We focus a lot of our energy on open standards and platforms. And if there are open source projects that we believe in we'll invest resources to support them.

There has been a big IBM push on Smarter Planet--how has the program evolved?
Mills: Smarter Planet launched in 2008 as a result of looking back at a variety of projects and business trends over the last few years as customers became more aware of using IT to support functions in different ways. We launched with dozens of pre-existing references and added hundreds more this year.

We were seeing a variety of projects that you would classify as physical meeting virtual world. These were clearly not back-office oriented but rather out where the business was conducted, like transportation services or power networks.

We saw a significant acceleration in the number of these of physical world projects for a number of reasons, not the least of which is due to the fact that the cost of microprocessors had dropped dramatically. Microprocessors, embedded devices, RFID pricing have all come down to the point where computing at a different scale had reached an inflection point.

The physical world projects started to accelerate and be much more front of mind. All eras, technology or otherwise build on eras of the past. It's our view that problem-solving via IT techniques can transcend limitations of our past.

Which components of Smarter Planet are driving adoption of the solutions?
Mills: The users tend to understand the problem at a high level and have a lot of insight. Our role is to be able to distill the problem to an IT solution.

For example, Center Point has been doing grid sensors and optimization to be more predictive for preventive maintenance, thus reducing capital and downtime. Our engagement was to get at the root cause drivers. The grid had a variety of sensors and data that had to be aggregated and formatted rationally.

There are transportation projects, water projects a vast array of possibilities. It's an extremely interesting new line of business that builds on years of experience.

How do non-IBM software products fit into the services that the company provides?
Mills: At IBM software, we don't actively sell other people's software products. The professional services teams can and will of course do implementation on other software, but our focus is if there is a piece of software our users need, we provide the mapping to every other major software product, such as the Oracle suite. We do a better job of integrating with other people's technology often better than they do.

Our software has to satisfy our customers which means we have to have an answer. My plan is to keep creating new software and solutions that solve as many problems as possible.

Does IBM focus on areas outside of enterprise IT?
Mills: We're focused on business customers, not the consumer, but we do look at the capabilities of public internet sites and applications and apply them to a business context. One example is that there are many functions in LotusLive that were influenced by consumer applications, but they have been recast with a business mindset.

Companies want these new Web 2.0 capabilities but tend to want to keep them within their firewall. We use our own software for social networking and internal communications and figure out how to apply these principles to knowledge management and use

How does IBM expect to continue growth?
Mills: I don't think we'll ever get to "the end" where we'll solve every problem. That demand requirement will never go away. The bulk of our revenue comes from products and services that we've created from within and that's the plan going forward.

There are billions of dollars of venture money going into software companies. We'll make, buy or partner, but one way or the other, we'll fill in the gaps that meet the needs of our customers.