business

The New I Way Hog: Ibm

Big Blue's strategy: Blow 'em all off the road

For IBM, running the computer systems at the Olympics was supposed to be a great opportunity to showcase the computer giant's budding Internet skills. IBM's Atlanta performance did generate headlines around the world--only they were for a glitch-ridden system that couldn't get scores or accurate statistics to news organizations on time.

That is just what IBM didn't need. While the browser battle between Netscape Communications Corp. and Microsoft Corp. was grabbing all the headlines, IBM had spent a year quietly working on products and strategies to make good on Chairman Louis V. Gerstner Jr.'s promise of making the company a leader in network computing. "People view the Internet as a two-horse race between Netscape and Microsoft," says John McCarthy, an analyst with market researcher Forrester Research Inc. The Olympics were supposed to showcase IBM's growing Web abilities and help it elbow into that two-way race.

Ironically, despite the headlines, the Olympic system may already be helping IBM prove its Web bona fides. The scoring system was just one of 10 projects that IBM was responsible for as the technology coordinator for the Olympics. All the others worked with hardly a hitch.

IBM's Internet setup in Atlanta, in fact, was one of the most ambitious Web sites ever built. On each of the 17 days of the Olympics, an average of 10.6 million people stopped by, and on Aug. 1, 17 million sports fans logged in--twice the number of subscribers to America Online, CompuServe, and Prodigy Services combined. IBM computers served up the equivalent of 2 million printed pages of scores and stats per day. Meanwhile, 47 digital cameras scattered around the games captured nearly 10 million images and fed them over the Net at a rate of 21,000 per hour. Another IBM system sold 100,000 tickets and souvenirs online, raising more than $5 million for the Olympics.

WALL STREET BRIEFING. These systems impressed the pros. "It was very leading-edge and pretty courageous," says Francis J. Erbrick, chief information officer for United Parcel Service Inc. "They proved that they had the capacity to pull it off." Even Eric E. Schmidt, chief technology officer of rival Sun Microsystems Inc., says he was impressed: "The Web stuff was well done."

The next event: a series of Web product introductions beginning Sept. 4 and continuing all fall. First up will be a scheme for electronic commerce, including setups for customers in such markets as energy, retailing, and banking. On Sept. 6, IBM brass will brief Wall Street on their cyberspace progress, including details about the massive work under way to employ Sun's popular Java software. The company will also roll out software for building Web sites and online catalogs and plans to market an under-$700 "Web PC" for corporate customers. And on Sept. 9, IBM is expected to announce its plan to fund--along with 18 banks--a home-banking system.

Getting all these projects off the ground is part of Gerstner's strategy for the $72 billion giant to catch the networking wave and boost growth, which at an estimated 7% in 1996 still lags the overall computer industry. The worldwide information-technology business--including hardware, software, and services--will grow 10% a year, to $1.238 trillion, by the year 2000, according to IBM. About half of that growth--$404 billion, IBM reckons--will come from network computing products and services.

To grab its share of that growth, the company is making big investments. A new division is creating Internet products, and a quarter of IBM's $5.5 billion research and development budget is now earmarked for network-related projects. IBM has also funded new business units aimed at helping companies analyze mainframe databases over the Internet and helping media companies put content onto the Web. Meanwhile, IBM's Lotus Development Corp. subsidiary has been ordered to reorient its Notes groupware for the Net.

In addition, IBM has funded dozens of internal Java-related projects and is backing a venture fund for Java startups as well as a new company started by Netscape called Navio Communications Inc. that will develop Internet software for Net PCs and consumer products. Says Schmidt: "There's no question these guys are moving faster than they ever have in the past."

Much of this effort is aimed at exploiting IBM's unique edge over other Web wannabes: its lock on the mainframes that still hold the most vital information for the world's biggest companies. Merrill Lynch & Co. analyst Bruce D. Smith figures that 70% of the world's corporate data is stored in IBM computers. "Not everything is going to migrate off the mainframe," says Smith. And to make sure customers have the horsepower, on Sept. 10, IBM will unveil a new generation of powerful mainframes.

IBM's plan is to use the Web to unlock that mainframe data for new electronic commerce applications as well as intranets, internal corporate nets that use the Web format. "The marriage of Internet technologies with the classic information technology world is where IBM could have huge leadership," says Irving Wladawsky-Berger, chief Internet strategist and general manager of IBM's Somers (N.Y.) Internet Div.

Take what IBM has done at American Airlines Inc. The only way it could sell tickets online was to let customers reach into the SABRE mainframe-based reservation system. IBM software made that possible, says John Samuel, a managing director for American. Because the setup is cheaper to run than taking reservations over the phone, the airline is passing savings to online customers: Each Wednesday it posts fare specials for the upcoming weekend--only available online. So far, 170,000 people have signed up for the service. "This is an economic way of distributing our product," says Samuel.

SCOREKEEPING. IBM's homegrown Internet software efforts include something called Web Object Manager (WOM). Developed by IBM researchers, WOM is a key technical underpinning for electronic commerce because it can keep track of hundreds of tasks or transactions. At the Olympics, for example, WOM was used to create Web pages that linked to other systems where scores and results were constantly updated. That way, as new scores came in, the Web page didn't need to be updated, only the other computers with the data.

To build a market for WOM and other IBM technology, the company is following the lead of Web upstarts. IBM will let researchers download new software technology free from a special alphaWorks Web site--the way Netscape launched its popular browser. First offerings will include some WOM technology as well as a program called Bamba for delivering audio over the Net. "We have this whole new sense of anything we invest in: You flood the market in any way you can because everything moves so fast," says William A. Etherington, general manager of IBM's industry-specific sales units.

By far, IBM's biggest bet is on electronic commerce. Efforts range from a virtual mall to an online procurement system that is being tested at Eastman Kodak Co. and NationsBank Corp. Meanwhile, developers are helping craft electronic commerce setups for specific industries. There's a system being tested that links car dealerships to banks to provide near-instant loan processing. In the energy field, IBM is building a network to link oil companies and allow them to share data.

NEW WALLET. This fall, IBM will cut the ribbon on World Avenue, its virtual mall. Merchants in the mall will be able to list their merchandise in a single database. Type in your age and hobbies, and the system will zero in on the appropriate wares available in the mall, regardless of retailer. "Adding some convenient factors like that will help this take off," says Les Duncan, vice-president of Express, a unit of The Limited Inc. "Just putting a catalog online isn't very exciting." Based on early tests, Express figures it will get enough traffic to break even in six months. IBM charges $30,000 to set up shop and $2,500-a-month "rent," and collects a 5% fee on all transactions. So far, only three retailers have signed on, but IBM says it's confident it will have 20 companies before the mall goes live in October.

Another IBM ingredient for E-commerce is software to protect against online fraud and theft. How? With an "electronic wallet" using the Secure Electronic Transaction (SET) standard and so-called certificate of authority software to verify the identity of participants in a transaction. The wallet--a piece of software--will be available through the Internet or from banks offering Visa and MasterCard credit cards. At online retailers that accept the electronic wallet, consumers will be able to shop and have payments automatically put on their credit cards.

How quickly will any of these initiatives pay off--and help IBM achieve Gerstner's growth goals? "You don't get rich here in a year or two. Our thinking allows for a five-year payback on investment," says Mark N. Greene, an IBM vice-president. By then, IBM may stand for Internet Business Machines.

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