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Sunday, July 17, 2005 - Page updated at 12:18 AM

Microsoft's plans don't worry IBM

Seattle Times technology reporter

ARMONK, N.Y. — Steve Ballmer didn't mince words last Sunday at Microsoft's annual partner conference in Minneapolis.

After whooping hello to thousands of people who sell Microsoft software for a living, the chief executive emphatically said their biggest competition is IBM. He also told them the time is ripe to win customers away from the grandaddy of the technology industry.

"I think probably for many of you who compete in larger enterprises the No. 1 competitor for us and for you is IBM," Ballmer said, according to a Microsoft transcript of the event. "Sometimes it's Oracle but really it's IBM, IBM, IBM, IBM, IBM."

But the head of IBM's software division isn't too concerned.

Steve Mills, a senior vice president who runs what is in effect the world's second-largest software business after Microsoft, said he's still waiting for the threat to materialize.

In a recent interview, Mills also discussed the upcoming version of Windows code-named Longhorn, Linux, customers and the state of the software industry.

Here's an edited version of the conversation:

IBM, Armonk, N.Y.


Sales, 2004: $96.5 billion, up 8 percent

Employees: 329,000

Product lines: Computer hardware, chips, services, software

IBM Software Group


Sales, 2004: $15.1 billion

Employees: 40,000

Key products: WebSphere transactions and messaging software; DB2 database; Tivoli systems-management products; Lotus collaboration products; Rational software-development tools

Microsoft


Sales, fiscal 2004:

$36.84 billion, up 14 percent

Employees: 59,947

Product lines: Windows; Office; Servers and developer tools; Business Solutions; MSN; mobile and embedded devices; Xbox, home and entertainment

Q: How concerned are you about the high-performance computing products Microsoft is developing and its new database? Are you concerned about the company moving into your business market?

A: People have wanted to talk to me about "Microsoft is coming. Microsoft is coming." for the last 15 years. I've listened to this so many times. Lots of people are coming.

Everyone claims they're going to get better, everyone claims they're going to more scalable, they all have their code names and the things they're going to show up with that are going to be wonderful in the future. And I shrug my shoulders and say OK, I'm waiting. That's all very interesting. I don't let it distract me. I'm focused on solving customer problems and delivering the best possible technology to grow IBM's business.

You pay attention to your competition, but not so much attention that you become obsessed with something they say they're going to do, because often they say they're going to do something and you're waiting and you're waiting. That's a distraction.

The customers are looking for predictability and value today. They've become particularly jaded on all the vendor talk about things coming but coming in the distant future — you know, it's Longhorn when? We're still waiting for Cairo. We're waiting for lots of things that are part of a long list of code names and initiatives that Microsoft has been coming out with for the last decade.

Q: So you're not trying to respond to particular features or products?

A: No, you can't build your business around the competition; you build your business around the customer. My view is, show up with your code and your people. I've yet to find a customer that places any value on "chartware" — it's people and code. If you have code, you can show up and compete. But often having code alone isn't good enough because the customer gets no value until the technology is implemented. So they're looking for people to help them.

Q: IBM is providing chips for the new Xbox. Does that change the relationship with Microsoft?

A: I think the whole world has had to move to more of a compete and cooperate model. We all have interesting relationships where we cooperate with each other, and yet we'll also compete. It's part of the maturing of the IT industry, that it's not as stovepiped and isolated in terms of how you would describe how the companies operate. The ecosystems touch on each other and interoperate in interesting ways.

We're one of Microsoft's major software-vendor relationships. No, we're not out doing a lot of joint selling on the software side, (but) we certainly participate in their vendor programs. We get all the information to enable our products. We work to deliver the best possible products on the Windows platform to make Windows run well, to run better with our technology.

We're not trying to disadvantage Windows in the marketplace. Are we doing Linux? Yes. We're also doing other Unixes. It's a curious and very mixed, somewhat confusing world these days.

Q: Some tech executives have raised concerns about the quality of the U.S. education system and the supply of potential employees in the pipeline, relative to the talent other countries are producing. What are your thoughts on this issue?

A: There are good people all over the world. We're a global company and have been for many decades. From our perspective, nothing has changed. There are good universities around the world and lots of talent out there. Of course, IBM is a diversified technology company, both by product as well as by location. We do software development in dozens of locations around the world and have for many decades.

Q: What do you think of Microsoft's recent overtures to the open-source community, such as Steve Ballmer's dinner with the CEO of Red Hat. Are they legitimate?

A: Any commercial-software company can simultaneously participate in standards and open source. Now the definition of participate is generally that you've embraced it, you're supporting it and potentially delivering it.

Generally, around Linux, the idea is that you support it — either through writing your stuff on Linux, having Linux run on your hardware. So our software runs on Linux and obviously Linux runs on our hardware boxes.

That's not the case with Microsoft. They're not putting any of their software on Linux, certainly haven't done that yet. They say they're looking at it, but when I see SQL Servers running on Linux, I'll be convinced they're serious about Linux.

I don't think that's going to happen anytime soon. I think it will continue that Microsoft perceives Linux in particular, and a number of other open-source things, as being threatening to their franchise.

Q: Has enthusiasm for Linux calmed? Is the bloom off a little bit?

Steve Mills


Title: Senior vice president and group executive, IBM Software

Age: 54.

Career: Joined IBM out of college, as a sales trainee in 1974. In sales until 1980. Became general manager of software division in 1993, senior VP in 2000.

Education: Psychology degree from Union College in Schenectady, N.Y.

A: No. First of all, things that get very big don't grow as big as they did when they were very small. Don't mistake the growth-rate issue for the sheer mass of people that are engaged around Linux. The university environments have all moved to Linux. It is the platform on which computer science is taught in universities around the world.

By the way Unix dominated computer-science programs, has for decades, not Windows. Business schools may do stuff on Windows — spreadsheets and things of this nature — but the computer-science departments have always been heavily into Unix, and a lot of that now has shifted over into Linux. So kids are coming out of school with Linux skills. The Unix market is large, and a lot of people that were running on Unix are now running on Linux and that will continue.

Q: What do you think about the new alliance between Microsoft and Sun Microsystems? Is it a partnership against IBM?

A: I don't see very much going on there. They had an announcement recently, talking about security interoperability. You know, we demonstrated security interoperability in 2003.

Q: You brought up Longhorn. Do you expect much from it? How will it affect IBM?

A: Only time will tell what really arrives when. Quite often these grand pictures of technology are delivered more incrementally, so the promise of Longhorn may translate into the delivery of a variety of features that make up the Longhorn feature list, that are not going to be delivered all at once.

We clearly expect Microsoft to keep revising the Windows environment.

Q: Do you expect Longhorn to drive a wave of upgrades?

A: A lot less so in business than perhaps on the consumer side. A lot of very interesting capabilities in Longhorn, they relate to graphics, to rich client function. Longhorn requires a reasonably large, fast machine to run. It's going to be a while before businesses go through a refresh cycle to where they have the necessary equipment to run something like Longhorn. And then in many cases they'll say, well, I don't need that function, that's not what my workers are doing.

Q: Bill Gates and Steve Ballmer lately have been saying the coming decade will bring more advances than previous decades. Do you see this being a particularly rich decade for software innovation?

A: I believe it's going to be a period different from periods in the past. Innovation in past decades was characterized by individual products, it was more gadget-centric, the definition of where change and value is coming from was geared more to a device — minicomputers, client, server.

I think going forward more value is going to be delivered through rethinking of business processes and applying technology in creative ways to make business processes work more efficiently, effectively and make them more flexible.

Businesses today would say that they have a lot of technology. They're trying to leverage everything that's there more effectively. They want to leverage it in the context of the way they're thinking about their business model changing.

Much of the savings that's been realized over the course of the past 50 years has been through functional automation. What's going to happen here in the next wave is savings being realized through the optimization of business processes and work flow. That's a different thought process, it's a much more horizontally focused concept than traditional, functional automation.

Q: After talking to some of your software people, this place seems almost like a consulting firm or systems integrator vs. a pure software company.

A: If you think about information technology, its sole purpose in the business world is to deliver business efficiency — it's a tool, right? The reason why people started buying mechanical devices in the first part of the last century — they were labor-saving, post-industrial-revolution concepts.

Calculators, moving to punch cards and paper tapes and mechanical techniques to save labor — how do I make it more efficient to print phone bills and bill my customers?

These systems built up over the course of many years, coming out of the electromechanical world, coming into fully programmable. But it's always a business tool, in the sense it was always about business engineering, to try to make a business run with greater efficiency.

So it's a means to an end — the end was business efficiency, the end was business growth, the end was return on investment. It was always a tool.

Tech companies, they always want to talk about how wonderful their technology is. If you talk to the consumers of the technology, what they want to talk about is what value their business is getting from it. What you hear from IBMers is what IBMers hear from their customers — we are a reflection of what our customers tell us they want.

Q: Can you talk about spending cycles in the industry — where is the software business now and where is it going?

A: I tend to view the current pattern [and think] there's no reason that is going to change. Meaning that this industry, the IT industry and the software part of the IT industry, moved from a double-digit growth industry in the 1990s to a single-digit growth industry in this decade.

We've been watching this industry grow, we had some real dips in there; we had some years that were essentially flat. Today, depends on whose data you want to look at. You see numbers anywhere from 4 to 7 percent.

The industry has been growing at 4, 5, 6 percent now for the last few years and I anticipate we're going to see more of the same. I don't see anything changing to cause the rate of growth to suddenly shoot back up to some high number.

Usually, when I talk to the consumers of the technology — the businesses that use it — they would say they were overbuying in the 1990s, that they were buying more technology than they needed, that today they're gong to scrutinize their purchases much more closely, they're probably going to buy in smaller increments.

The patterns of purchasing, the patterns of consumption, have shifted. They're not likely to shift back to something else anytime soon.

There are some areas of software that are growing double digit. Thankfully we're participating in many of the faster-growing spaces, but the overall growth rate is single digit and probably will continue to be so for the foreseeable future. That's not all bad. There's still growth there and there's certainly opportunity to take share away from others.

Q: How is IBM doing with developer mindshare vs. Sun and Microsoft?

A: Extremely good. I don't worry too much about Sun with developer mindshare. Much of what they're doing falls into the standards community space anyway. The market is dominated by people who write applications that run on multiple systems. Microsoft's perspective is you only write things on Windows. That's actually a minority of the world, that writes things only to Windows. The majority of the world writes things to multiple systems, including Windows.

Microsoft is not what people think Microsoft is. There's always this tendency to want to describe everything in this polarized perspective of the world. Certainly it's a large company, and it can be a formidable competitor without a doubt, so it's not to diminish Microsoft's participation in the market, but it's a huge market.

Last year $250 billion of customers' money was spent on software, and certainly they spent a bunch of money with Microsoft, but they spent most of their money elsewhere. It's a very mixed, heterogeneous world.

It's much more diverse than this Microsoft-centric notion that some people have. You have to move out of the home. Clearly, in the home, Microsoft is a dominant provider. But you get out of the home, into business, it's a much more diverse, cluttered world.

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

Copyright © 2005 The Seattle Times Company


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