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Lotus faces threats on all fronts

In the wake of the resignation of its longtime chief executive, the company must deal with increased competition from Microsoft and others.

Lotus Development is facing its biggest challenge yet.

In the wake of the sudden resignation of its longtime chief executive Jeff Papows, and days before the company's first user conference of the new century, the software maker faces increased competition from its nemesis in the messaging market, Microsoft, as well as new threats from upstart application service providers.

Lotus' early adoption of the hosted application model and tested leadership in the groupware market put it in a strong position going forward, said analysts. Still, incoming CEO Al Zollar will face a tough freshman year at the helm of the IBM subsidiary.

Zollar, a 23-year IBM veteran, has been picked to take the baton from Papows, who is resigning to lead an independent company, which has not been identified.

Next week at Lotusphere, the company's user confab taking place in Orlando, Fla., Lotus executives will sell its customers on a new Lotus that understands the Web and browser-based applications and can attract application service providers. It's an important early test for Zollar. Many feel Lotus is still a one-trick pony, existing solely on Notes/Domino and the largesse of parent company IBM.

Zollar downplays those concerns and says Lotus still has a place in the Web-centric world.

"Notes and Domino are an important part of the Web world," he said. "We see a large footprint of Notes users."

Still, the decision by IBM execs to appoint one of their own to lead Lotus has led to speculation that Big Blue wants more control over the Cambridge, Mass.-based software company it acquired in 1995.

Sam Albert, a consultant and former IBM executive, believes IBM is willing to let Lotus remain an independent subsidiary. "This is a different IBM now than it was when it bought Lotus. The company is much more nimble and operates in Internet real-time. Look at its adoption of Linux. This is the 'new you' Big Blue. It has attempted to take a good executive and lead this company, not control it," he said.

Albert points to Zollar's experience as a senior IBM executive at Tivoli after it was purchased by Big Blue in 1996 as a good example of his ability to lead a new addition to IBM's universe while maintaining that company's independence.

When the merger occurred, industry watchers feared the youthful drive at Tivoli might fall victim to the IBM's corporate bureaucracy. Insiders say Zollar didn't let that happen, and his Tivoli experience will guide his leadership at Lotus.

"Lotus has one of the strongest name-brand recognition in the industry. I want to continue this and foster it," said Zollar.

Zollar believes Lotus will succeed, because at the core of a Web-centric world is messaging and collaboration and, on top of that, technology that helps organizations exploit the knowledge within those applications. "This is what Lotus uniquely offers to its users," he said.

But some analysts warn that the messaging and groupware market may be enjoying its last heyday.

"Last year (saw) a big explosion in unit sales for both Microsoft and Lotus," Tom Austin, an analyst at the Gartner Group said. "They can't sustain this. We expect the market to saturate soon. What do you do then?"

In the case of Lotus, Austin said it has to establish a clear marketing message, explaining the value of the company's flagship Notes/Domino software as the core of a knowledge management (KM) software suite.

"They established the value of groupware to about 20 percent of the (overall) market. They have to do a much better job than that with knowledge management," Austin said.

Lotus' new knowledge management strategy encompasses a new family of technology that facilitates people working in teams, networks and "communities." Some of Lotus' products in this area are SameTime, a real-time collaboration and communication product; "Raven," a collection of Lotus' knowledge management technology developed by the company over the past two years, which is due out in beta sometime this year; as well as a number of new components within the latest version of Notes.

Jim Kobielus, an analyst with the Burton Group, said in order to strengthen its hand in the KM arena, Lotus needs to continue integrating Sametime's awareness, instant messaging, chat and data conferencing technology more tightly into the core Domino and Notes products.

"In Notes, Lotus has the best-integrated all-functional groupware client on the market, as opposed to Microsoft's confusing several-client approach. At the same time, it should lend its core functionality to Domino, but also be able to stand alone, independently of Domino for customers who have standardized on another groupware/email product," Kobielus said.

Beyond the threat of market saturation, some analysts see the young hosted applications market as yet another obstacle to Lotus' Notes and Domino.

The outsourced email and messaging business has taken off in the past several years, as Internet service providers, telephone companies, computer companies and others have begun offering their customers free email. But analysts say this is just the beginning; other applications, ranging from calendar services to full-blown office software suites, also will be available for rental or free use online, which cuts right into Lotus' traditional user base.

However, Gartner's Austin isn't impressed, saying this budding applications service provider (ASP) market has yet to make strong inroads to the corporate world, and has just barely broken into the small-and-medium-sized business market. "ASPs just haven't emerged yet. Everyone is waiting for the market to develop."

Lotus will continue to grow revenue from its Notes/Domino groupware suite in a world where more and more individuals and corporations are getting their business productivity applications, email and voice messaging tools from application service providers by continuing to provide hosted services based on its traditional products, said analysts.

Many observers argue that Lotus was one of the first traditional software companies to understand and develop hosted applications. They point to the company's earlier success with its Instant TeamRoom software, introduced three years ago, which allows distributed users to work together over the Internet. Lotus backed that up with QuickPlace, a hosted workgroup application suite rolled out in February.

"ASPs represent a big part of Lotus' strategy of delivering Domino to small to midsized companies, which have traditionally shied away from the technical challenges of implementing and administering a complex groupware environment such as this internally," said Kobielus of the Burton Group.

Zollar said he is looking forward to next week's Lotusphere conference as a way to meet customers, talk with analysts and work closely with his employees.

"I want to go and meet the people who have made this company such a great success," he said. "I still have a lot to learn."