Again, Ibm Divides To ConquerEvan I. Schwartz
If a cumbersome system of central planning couldn't keep IBM on top of well-established markets, how could such a setup move Big Blue into new frontiers? More precisely, could a 1,000-employee empire reporting to a single vice-president in White Plains, N.Y., figure all the ins and outs of the phenomenon known as multimedia--a digital brew of computers, video, telecommunications, publishing, and entertainment?
PROBABLY NOT. That's why the empire, established in 1990, is being dismantled. Lucie J. Fjeldstad, the hard-charging corporate vice-president in charge of multimedia, is taking apart her domain. A year ago, it included engineers devising ways for IBM computers to manipulate video, programmers inventing new forms of interactive entertainment, and executives scouting multimedia deals. They've been dispersed to startup-style IBM units worldwide. Says Fjeldstad: "I've been spinning off my children."
At this stage, Fjeldstad's kids are simply trying to find their way into the digital future. But creating these tiny pseudo-startups may be the best way to identify the next billion-dollar opportunity. "I don't see a clearly defined multimedia strategy from IBM. That seems like a smart approach," says Bruce
R. Ryon, who recently left Apple Computer Inc. to track multimedia for Dataquest Inc.
MINIMIZING RISK. The multimedia reorganization mirrors the companywide overhaul that split IBM into 13 Baby Blues in 1992. The analog to IBM headquarters is Fireworks Partners, a Somers (N.Y.) holding company formed in January. It includes some of Fjeldstad's projects and has about $50 million in venture capital to invest in startups and joint ventures. To minimize risk, IBM will align with partners and hold only minority stakes. If some of these really take off, IBM could get rich. "People have said: 'Gee, [with the IBM PC] you created these very successful businesses--Intels, Microsofts, those kind of folks,'" says Robert L. Carberry, the IBM veteran who is Fireworks' president. "'Why didn't you participate in their equity growth?'"
With the old system, IBM had trouble getting its multimedia projects going. For instance, it held talks with both Time Warner Inc. and Tele-Communications Inc. last year to build an interactive cable-TV system. The talks withered as IBM's top brass focused on mounting internal problems. Plans for cable are now on hold, Fjeldstad says.
And the IBM multimedia projects that came to market haven't been hits. An ambitious series of videodisks for schools, entitled Columbus: Encounter, Discovery & Beyond, cost more than $5 million to produce but sold only about 2,000 copies at $2,000 a pop, estimates Rockley Miller, publisher of Multimedia & Videodisc Monitor. A big problem was the use of videodisks instead of the increasingly popular CD-ROM format.
Rather than shy away, IBM is redoubling its efforts. One semi-autonomous unit, the 50-employee IBM Multimedia Publishing Studio in Atlanta, is aggressively buying electronic rights to properties such as interviews and "other undisclosed material" from Playboy magazine. Fireworks Partners is sponsoring efforts to deliver multimedia information to industries ranging from real estate to music recording to TV news. And IBM Europe is funding an ambitious multimedia project that covers the history of the continent.
There's also a high-profile Hollywood beachhead. IBM has invested $10 million in a digital production studio. Called Digital Domain, it's headed by Terminator 2 producer James Cameron, who will produce all of his special characters and effects there for the next five years. The studio's president is Scott A. Ross, former general manager of the special-effects shop Industrial Light & Magic. Ross figures film characters created in the studio can also generate income from video games, T-shirts, and TV commercial licensing deals.
DIRECT SELLING. IBM sees big opportunities to sell hardware and software to manipulate all those digitized bits of sound and image. IBM's Watson Research Laboratory in Hawthorne, N.Y., has created a graphical supercomputer called the Power Visualization System, which packs 32 of the chips used in IBM's RS/6000 workstation. A team of 60 engineers is selling the $500,000 setup to film studios and ad agencies--the first time IBM's esteemed research division has directly marketed technology.
So far, the Watson engineers have sold five systems to cutting-edge production houses, which in turn provide IBMers with insight into the world of video. "We're learning what the market wants without an intermediary," says Abe Peled, head of software research at Watson Labs. The unit is not yet profitable, but its gear produced effects for Sylvester Stallone's new movie, Cliffhanger, and ads for American Telephone & Telegraph Co.
Eventually, IBM wants to spin off some of its multimedia efforts. Perhaps the first will be the Multimedia Publishing Studio, which is buying rights to material for CD-ROM products. CD-ROM publishing looks like a promising market: The number of PCs with CD-ROM drives doubled last year, says Dataquest, to 2.8 million, and will likely double again in 1993. One forthcoming IBM disk for kids is based on exclusive video and audio clips culled from the Biosphere 2 project in Arizona.
Most of IBM's multimedia efforts are not nearly so ripe. It's not clear yet, for instance, what the demand will be for the software being designed by Kaleida, IBM's joint venture with Apple Computer. The company wants to create a universal format for running multimedia titles on many types of computers and consumer electronics. But it hasn't locked up key industry support. Similarly, IBM has inked a deal with Blockbuster Entertainment Corp. to electronically transmit the data to press CDs on demand at record shops. The idea is to avoid losing sales when a title is out of stock--no matter how obscure. But currently, Blockbuster is the only big retailer to have signed on.
Some of these efforts could be swept away as IBM's new CEO, Louis V. Gerstner Jr., resets priorities. "The only issue [we have] with IBM right now is the uncertainty," says Robert Norton, president of HomeView Inc., a Needham (Mass.) company that's developing a system with IBM to allow realtors to give buyers PC video tours of homes.
Indeed, Fjeldstad's key remaining task is to secure Gerstner's support. She met with the new boss on May 3 "to educate him" on multimedia. She says she wasn't given any assurances but "[that] I got in there early with him is a good sign." With her empire fragmenting, Fjeldstad admits that her central-planning job is becoming obsolete. She's already moving on to other projects, including an exploration of interactive home-shopping technology with a big retailer. "IBM has learned the hard way that there isn't one business model for the entire industry," she says. Indeed, a multifaceted approach to multimedia may be the only way to go.