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IBM forms new software division

Big Blue plans to announce the creation of an independent software company aimed at the customer services market.

Big Blue is getting bigger.

Armonk, New York-based technology titan IBM announced today it is creating a new software division that will focus on customer relationship management (CRM) systems.

The new Indianapolis-based company, which has yet to be named, will operate as an independent business unit with its own board of directors. It is being formed out of Software Artistry, the customer support software firm IBM acquired in December for $200 million. Scott Webber, former chief executive of Software Artistry, will serve as CEO of the new business.

"We are creating an autonomous business, a la how Tivoli is positioned within IBM," Webber said. "What has really driven this is that CRM is one of the three key pillars in IBM's e-business strategy. It brings the business value to e-business. IBM has acquired and built many technologies over time that we are now pulling together into a focused company."

The pillars are customer support, customer service, and "call center" phone operator systems. The new integrated software is to include features for product marketing and sales, customer service and support, and which can be tied into a wide variety of existing corporate computer databases and phone operator call centers.

IBM executives estimate the new company will have sales of about $250 million annually. The company is expecting the new division to be ready for business immediately. There are already more than 500 people working at the CRM company and it is expected to grow to more than 2,000 employees worldwide over the next 12 months, IBM said.

"With the CRM market anticipated to grow up to 50 percent annually and IBM's immense installed base of potential CRM customers, it will have quite a large vein to mine," said Boston-based analyst firm AMR Research about the announcement. "But aside from fitting the pieces together to make a viable product, the company will also have to prove its ability to integrate to other systems and to function on a variety of operating platforms. IBM has its work cut out for it in challenging well-entrenched CRM companies such as Siebel and Aurum, but could clearly give them a run for their money."

IBM will also be challenging many of the enterprise resource planning system vendors like SAP, Oracle, and Baan, who are developing or already have these types of products on the market and are integrating them with their massive business process automation systems.

In fact, Baan bought Aurum last year to enter the market. And PeopleSoft has been rumored to be in talks with Vantive for a possible merger.

But IBM is confident its name and extensive client base will allow it to make a significant dent in the market. It is also relying on the fact that analysts say no one company has emerged yet as the clear leader and the market is barely penetrated. Less than 20 percent of the U.S. market has been hit and virtually none of the European or Asian market is implementing CRM software, according to analyst firm Dataquest.

Software Artistry also made network management software. That division of the company will remain under Tivoli's wing, Webber said.

Reuters contributed to this report.