IBM Busts Billion-Dollar Move

NEW YORK -- IBM has unveiled a massive, three-year, services-based initiative valued at $1 billion that's meant to help users manage their critical business data. But the vendor will face major storage challenges as it rolls out the strategy over the coming months.

In an announcement here today, IBM unveiled a host of services for the likes of business analysis and compliance, as well as new versions of its WebSphere middleware for searching and integrating data. (See IBM Captures Growth.)

Speaking at a launch event at New York's Ritz Carlton Hotel, Ginni Rometty, senior vice president of IBMs consulting division, said IBM is pumping $1 billion into developing software specifically for managing data. The exec said IBM will devote 15,000 consultants to its services effort and hire around 10,000 more -- a clear indication of the vendor's aim to lure users into its services arm.

The strategy is no surprise. The services dime has become increasingly important for vendors as users tighten their purse strings for hardware and software. (See Software Slump Is Deal Time.)

But the news raises the question of how IBM plans to support the new services with storage. Rometty told Byte and Switch that the new services, which are tailored to individual customers’ needs (and priced accordingly), will be underpinned by IBM’s existing storage offerings. Users could, for instance, opt to have storage hosted by IBM itself (perhaps as a grid), or bought as a traditional suite of enterprise storage gear.But Gartner analyst Dave Cearly warns that despite the big plans, linking the new services with storage and back-end systems will be easier said than done. “There’s still some integration points,” he says. “It’s not a cookie cutter technology today.”

In particular, according to Cearly, IBM needs to think seriously about how its services take account of users’ existing metadata. The analyst added that data availability, speed of access, and users’ geographic issues will also need to be addressed. “There’s a geographic diversity to this. Data will be shared across the globe.”

Nonetheless, IBM has already won some users into its weird and wonderful world of custom services. For example, Bob Schwartz, the CIO of Panasonic, tells Byte and Switch that he has been working with IBM consultants to overhaul his company’s U.S. supply chain over recent months.

By combining IBM middleware and SAP Enterprise Resource Planning (ERP) technology, he says, Panasonic has been able to cut its supplier inventory from 35 to 7 days. Though the system currently only encompasses one key supplier, Schwartz is now planning to extend it to eight other partners. He estimates a total cost savings of up to $50 million a year.

Public sector organizations are also getting in on this act. Scott Vanderhoef, chief executive of Rockland County in New York, tells Byte and Switch he's working with IBM’s services teams to develop a fraud management system to tackle Medicaid scams.The County recently began piloting the system, which is hosted by IBM, to check claims from 500 medical practitioners and pharmacists in the local area. Vanderhoef says the system has identified around a quarter of medical practitioner claims and nearly a fifth of pharmacist claims as “questionable.”

Even if half of these claims can be explained, Vanderhoef estimates that the system could shave more than $12 million off the County’s Medicaid costs. The exec adds that, if the system were then extended across the whole of New York state, the savings could be as much as $5 billion.

IBM, of course, is not the only vendor looking to bolster its revenues with custom services and software. “A whole range of vendors are touching on this,” says Cearly. “SAP, Oracle, and Microsoft have parts of it, but IBM has more of the individual pieces and the heavy services.”

— James Rogers, Senior Editor, Byte and Switch

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