Big Blue Makes A Big Commitment

IBM is spending more than $40 million to promote its operating system

In January, IBM personal-computer executives realized a nasty crisis was brewing. Microsoft Corp., IBM's longtime software-development partner, was supposed to be promoting OS/2, the operating system designed to power IBM's most advanced PCs. But Microsoft Chairman William H. Gates III had lost interest in IBM's OS/2. Big Blue decided it had to start beating the drums for OS/2 itself. "We had a strategy," says Joseph M. Guglielmi, an IBM vice-president. "We had to tell people about it."

On Apr. 15, IBM is going to start talking. In a week-long series of meetings with customers and software developers, it will reveal its plans for OS/2. The meetings will focus on version 2.0 of the three-year-old software. Big Blue is testing it with 100 big customers and hopes to ship it widely by yearend. IBM says that this edition will finally deliver advanced graphics and the ability to perform several tasks at once, while it runs the word-processing programs, spreadsheets, and other programs corporate buyers already own.

WINDOWS PAIN. That upbeat message will come with a subtext, aimed at the customers who have so far bought 480,000 copies of OS/2: IBM is sticking with the operating system for the long haul. To back up its talk, analysts say, Big Blue will pour more than $40 million into promoting the software. It will spend $7 million more training salespeople to sell it, and it will run seminars to help developers write software for it. The company is even considering bundling OS/2 and some application software with its PCs instead of having it sold separately. "They have taken the gloves off for this one," says David R. Proctor, a former IBM software executive and now vice-president of software maker Ashton-Tate Co. "IBM is fighting for its ground."

It is no coincidence that IBM is playing hardball now. On Apr. 9, Microsoft and 20 other companies, including IBM rivals such as Compaq and Digital Equipment, announced that they're backing a common computer design. A key element of the plan is a forthcoming Microsoft operating system, confusingly dubbed OS/2 Version 3.0. Although the system will run on IBM machines, it is based on different operating-system technology. That software will feature Microsoft's Windows 3.0--a sore point for IBM. Sales of OS/2 have been battered by Windows, which makes the MS-DOS software that powers most PCs easier to use.

For IBM, making OS/2 a success is crucial: The software is key to keeping mainframes relevant by turning them into the engine behind PC networks. "We need an advanced operating system to do it," says Guglielmi. Microsoft, in contrast, simply wants to sell PC software. And since Windows outsells OS/2, it is putting its energies into that program. The result is a split that pits the former partners squarely against each other. "Both sides want to see if they can be successful without the other," says W. Frank King III, senior vice-president at Lotus Development Corp.

As part of its new toughness, IBM wants to discredit Microsoft's plans by convincing customers and software makers that Gates is promoting technology that won't be ready for years. During that time, IBM's goal is to build OS/2 sales to 1 million copies. It figures that will give it the critical mass it needs to win the support of most software makers. So far, Lotus, Borland, Ashton-Tate, and others are backing IBM.

For IBM, the dream outcome would be for Microsoft to scrap its plans to build OS/2 Version 3.0 around Windows and come back to IBM's approach. "If OS/2 were selling 2 million copies," says Guglielmi, "Gates would be calling and begging to get on my calendar." For now, though, he's not clearing any dates.

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