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Can IBM Thrive In A World Where The Average Deal Size is 2c?

“On this Web 2.0 highway, there are three exits: Microsoft, Yahoo and Google.”
Om makes a great point.
So what is IBM going to do about it?

The company itself would probably argue that it is already moving ahead with a Web 2.0 strategy – pointing to, for example, recent communications efforts around the notion of collaborative processing. Big Blue ran an event last week on social software, which is certainly a step in the right direction.
It seems to me though that the “sea-change” laid out this week by Bill Gates and Ray Ozzie has some obvious implications for open source software ecosystems generally and software ecosystems generally. If you’re a publicly traded company and you don’t make money licensing software, how will you make up the shortfall in revenues? OSS aside, if its not economical to host because it doesn’t offer enough customisation and services opportunities to make money, how can IBM really thrive in a software as a service economy? Targeted advertising is one possible answer to the revenue drop conundrum, but making money from an ad-model requires a volume service hosting network.
Check out this blog from Srimana Mitra about the potential business model economics involved, though and why Microsoft may be better positioned than it is given credit for.

Imagine, you are BMW, and you want to advertise to a very targeted audience of consumers with a certain household income level. Who else is in a better position to give you access to this super precisely segmented data about people’s income levels than major corporations?

Let’s say, GE cuts a deal with BMW, and lets them advertise to the 10,000 employees in the annual income range $100,000 – $500,000. What form would this advertising take?

It could be, that for this set of employees, as soon as they open up Microsoft Office or Outlook, BMWs ad is placed on their desktop. As a result, instead of GE paying Microsoft for the corporate license of MS Office, BMW ends up subsidizing the application.

IBM deserves some credit for its On Demand vision and execution so far, but it may need to tweak the granularity in terms of its vision of the profound changes facing many industries. The move to greater service orientation is as much about lightweight mashups as business process reengineering (I use “BPR” in full awareness of all the baggage it carries).
Googlemaps+craiglists=a change in property buying behaviours and information chains. Not a McKinsey consultant in sight.
Never mind “component-business modelling” and outsourcing to Bangalore, the question is: can IBM thrive in a world where the average deal size is 2 cents?
In case you’re wondering why I am writing about IBM when everyone else is pointing to Microsoft itself, the answer is, well, its a blog thing, and a RedMonk thing. Its a blog thing because I am trying to hit a point that other people haven’t, and its a RedMonk thing because its all about the ecosystem.

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3 Responses

  1. James, once again – points well taken. The following commentary is entirely from the hip (note: disclaimer). I’m not certain that organizations are ready to relinquish their user base to an outsourced (SAS) model. There is an tendency to view data/information as an asset that delivers ‘competitive advantage’. Arguably, this only occurs when the data -> information -> knowledge thing happens… Sorry, let me get back on track – can IBM succeed? Probably – they have a reasonable technology stack (albeit with all the trappings of ‘enterprise software’, a solid lead in server platforms, and they can sell you pretty much anything you might need). If they could completely kick butt on the AJAX juggernaut, they might have a wicked value proposition. Compare WebSphere Portal/Workplace UI to MS SharePoint… As always – a pleasure debating these issues in public.

    Christian FranklinNovember 12, 2005 @ 6:51 amReply
  2. Personally I think the ‘On Demand’ thing sounds a little old now..

  3. I know what you mean stewart. ibm of course doesnt want to move too fast to another term, given its millions of dollars poured into marketing on demand. the term does seem to have some utility (no pun intended) in the market, but its likely to be tweaked at some point soon, i should think. given that IBM has a new head marketing honcho…

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