Dennis Byron

The Good News Out Of IBM & SAP

Dolph, I talked about that possibility here ("itinvestmentresearch.c..." on August 6, 2006) based on comments by Hasso Plattner and just the fun of saying "What if." I really don't think IBM wants back into the ERP applications game (having exited in 1991) because of channel conflict and its strategy of becoming almost totally a services provider. And it has no need for SAP's billion-euro NetWeaver middleware business.

But "you never say never." Market dynamics could force IBM to reenter the ERP market in one of two ways.
1. The applications business could stay somewhat as it is today, heavily driven by perpetual right to use licenses but trending toward paying for the right to use as a monthly subscription (SaaS). In this scenario, the market will most likely be dominated by Microsoft, Oracle and SAP (and Intuit if it changes strategy vis a vis mid-sized enterprises). IBM would need to take advantage of the opportunity, if it evolves in this manner, by programs like the SAP/mainframe investment last year and by other programs with Lawson and others in the heritage AS/400 application supplier stable. In this scenario, IBM might choose to acquire one of its partners if Microsoft, Oracle and SAP successfully block Lawson and the others, and SAP is as good a candidate as there is for such an acquisition (forgetting likely anti-trust objections).
2. A second possibility is that the application business slowly contracts to be replaced—in a back to the future move—by technology-based business services (think ADP) where the brand of the application is not a major market factor. In this scenario, IBM would need to think in terms of acquiring many of the AS/400 application supplier partners, including Lawson and the JDE business of Oracle, for their industry and domain expertise. SAP wouldn't be much help to IBM in this scenario.

I used to think that scenario two would emerge quickly when my generation (first-year baby boomer; trained as a COBOL programmer) retired from IT management but I now fear, from talking to a lot of the X-generation moving into IT management (and still as techy as can be) that it is going to take another 10-15 years before enterprises move in large numbers to getting their IT as business services. As long as executive management feels that IT can provide competitive advantage and is not just a "payroll service," everyone will keep reinventing the wheel. IBM of course is already well positioned for both eventualities