IBM launches ‘on demand’ computing strategy for business

Peter Svensson

Thursday, Oct. 31, 2002 | 9:57 a.m.

NEW YORK -- In his first major public initiative as chief executive, Samuel Palmisano on Wednesday introduced a new strategy for International Business Machines Corp. that stresses a vision of selling computing as a utility-like service.

The new strategy is summed up by the mantra "on demand," which will be wedded to "e-business," the slogan championed by Palmisano's predecessor, Louis V. Gerstner.

The "e-business on demand" project intends to combine IBM's strengths in technology, hardware and consulting to give corporate clients computing muscle when they need it.

The tools and methods behind "on demand" have been with IBM for years but the company is spending $10 billion to bring them together including its $3.5 billion purchase this year of PricewaterhouseCoopers' consulting arm.

"It's a big bet, but not a risky bet," Palmisano said in a speech to hundreds of corporate customers, business partners and analysts at the American Museum of Natural History.

IBM will spend at least $700 million on marketing the new slogan during the next 12 months, Palmisano said afterward.

By letting companies buy computing as a service rather than investing in a lot of hardware and expensive programs, IBM hopes to continue its expansion in a sagging economy.

Once mainly a maker of corporate computers, IBM under Gerstner retooled itself into a provider of services as well as hardware. The new strategy continues that direction by emphasizing outsourcing such as a $4 billion deal IBM signed earlier this year to take over American Express' information technology operations.

"We think it's important for IBM to pursue this, because it's an industry trend," said analyst Frank Gillett at Forrester Research in Cambridge, Mass. Sun Microsystems Inc. and Hewlett-Packard Co. have similar projects under different names, Gillett said.

One of the pillars of IBM's "on demand" is the linking of computers into distributed networks that act to users as if they were one large computer. The most well-known application of the idea is SETI@home, which allows PC users to donate computing power to analyze radiotelescope data for sounds of alien life.

In IBM's version, customers will be able to tap into computing networks through the Internet when they need processing power. The company is banking on the life sciences as a major source of this business.

Some customers will continue to buy actual computers, while others can buy computing "by the drink," Palmisano said.

Another component of "on demand" is the emerging technology that allows large "self-healing" corporate computers to manage themselves without human intervention.

"We have to make systems than mimic the human body" in flexibility, Palmisano said. "We've been working on this for a couple of years, but we're ready."

In the new campaign, IBM is also emphasizing its commitment to "open" computing standards, which are determined by groups rather than single companies.

An example is the Linux operating system, which anyone is free to modify, as opposed to Windows, over which Microsoft Corp. has complete control.

Palmisano replaced Gerstner as chief executive in March, after rising through the ranks to lead several departments. On Tuesday, IBM said Palmisano would replace Gerstner as chairman at the end of the year.

Gerstner was credited with turning Big Blue from an ailing hardware maker to a nimble, competitive global enterprise focusing on services and technology.

Analyst Tom Bittman at Gartner Inc. called Palmisano's speech similar to one Gerstner made early in his tenure to introduce "e-business."

"This vision is what Palmisano will be measured against in the next 5 to 10 years," Bittman said.

Palmisano said the "on demand" initiative sprung out of an Aug. 5 meeting at which some executives suggested packaging projects in which IBM had already invested heavily.

"They saw that if we bring them all together we could solve a big problem in the industry and differentiate ourselves," Palmisano said.

He also called the business climate the most difficult of the past 30 years.

"We've hit the bottom, and things have flattened out," Palmisano said of the economy.