IBM Expands VIP to All Systems for Precision Sales

April 21, 2008 Timothy Prickett Morgan

In the wake of the merger of the System i and System p Power-based server lines over the past several months, IBM is taking its Vertical Industry Program, or VIP, marketing approach from the former System i division and applying it as a strategy to peddle the entire portfolio of servers and storage through its newly constituted Business Systems division. Business Systems, you will remember, was created in January 2007 as the marketing machine aimed at small and medium businesses.

The System i adopted the VIP approach to sales, which has very precise application providers working very precise geographies to peddle i5/OS V5RX and V6R1 (now i 6.1) applications. IBM is very secretive about how it has diced and sliced the world, the applications companies need, and who it is trying to peddle to, and for good reason: to be specific about the VIP plan would be to give competitors in the server, systems software, and application markets its playbook. But IBM does give some examples of VIP precision marketing, such as the well-known gambling casinos and hotels in Las Vegas (where the VIP idea got its start) or other examples such as labor unions in New York City, wine makers in Italy, or farm equipment manufacturers in Australia. In some cases, VIP geographies are as small as a specific urban area, sometimes they span a country. And in each case, IBM is asking specific partners to chase companies in their areas with specific solutions based on the i5/OS platform.

When it was launched in January 2007, the VIP effort had 80 different niches (combinations of an industry and a geography) spanning 15 countries. Nine months later, in November, IBM had VIP spanning 120 niches in 20 countries, and as of the beginning of this year, over 750 software partners are participating in the System i VIP effort. As of last week, IBM is folding a similar program for the formerly independent System p line (from a marketing standpoint, it was independent) called PowerNet into the VIP effort, and that will boost coverage to 160 sub-industries in 40 countries. And now Business Systems has been given the mandate to take the VIP approach to sell mainframes, X64-based servers, blade servers of all types, and storage to small and medium businesses.

IBM probably has somewhere on the order of 500,000 commercial customers who have applications running on at least one of its servers, and the OS/400-i5/OS-i platform probably accounts for just north of 200,000 accounts these days. Business Systems has all but the top 6,000 global customers, who are served by the Enterprise Systems division, according to Mark Shearer, vice president of marketing and offerings for Business Systems. And the reason why IBM wants to take VIP to those other 284,000 customers is simple: It works. IBM says that in the 14 months that the VIP effort was running, it generated nearly $500 million in System i sales–and that was when IBM shifted to user-based pricing on System i 515 and 525 servers, radically reducing the revenue stream from each sale. (But, I presume, driving up shipments, which several IBM insiders have said happened with the System i 515 and 525 boxes.) The point IBM wants to make is that the System i sales level driven by the VIP program was higher than expectations, and Shearer says that IBM want to chase the $50 billion opportunity for systems and storage among SMB shops with the VIP approach across all systems.

The AS/400 faithful will, once again, cry that a good idea that came from the AS/400 part of IBM’s business is being co-opted by the other server units. And this is only partially true, since the similar PowerNet program for the System p product line, which marketed to specific industry and geography niches, predates VIP. But you get the point. But as the past decade of AS/400 history has demonstrated, no good idea developed for the AS/400 and its kickers will not be used on other platforms, and conversely, any good idea developed for another IBM platform can be (and sometimes actually is) made available for the AS/400 and its successors. The problem is this: the AS/400 faithful, even after the obliteration of its division, the merger of Power Systems for server development and marketing and the creation of Business Systems to sell to all but the largest customers without any preference for platform, still believe that the AS/400 has special properties that deserve being highlighted and marketed. Such a discussion will fall on deaf ears at Big Blue for certain now. IBM is worried about growing in the SMB space and taking on Microsoft, Hewlett-Packard, Dell, and EMC, among others. And the AS/400 business, while profitable, is very small compared to the other platforms that IBM sells. And so Shearer is not going to apologize for making VIP applicable to blade servers and rack servers and baby mainframes and storage subsystems.

“With our expertise in the AS/400, iSeries, and System i space, we have a pretty good idea about how to go to market with midrange customers,” says Shearer with some pride. “And the Vertical Industry Program will be the cornerstone of how Business Systems will go to market.” Period.

And what Shearer is focused on is simple. He wants to innovate in the partner channel, which accounted for 80 percent of revenue for Systems and Technology Group products as they went through the Business Systems division in recent quarters. (Exactly how IBM plans to innovate its channel is unclear, but there is going to be some warring between System p, System i, and System x resellers partners. Even if IBM may have aligned its own sales reps to the new Business Systems platform neutrality, two business partners peddling System i and System p boxes are now going to try to chase each others’ accounts. Count on it. I have already heard a story of a System i partner telling another System p partner that he would shoot them if he set foot into the account. This is people’s livelihood, as you can see.)

Shearer is also keen on innovating with products in Business Systems, and called out the BladeCenter S blade machine for small businesses–which now supports JS12 and JS22 Power6 blades and i 6.1, AIX, and Linux operating systems. “We are going to continue to get more relevant, integrated systems to SMB customers,” says Shearer. Which means the “i” in System i is really a philosophy that will be adopted for all platforms sold into the SMB channel.

And finally, Shearer says that Business Systems will innovate in how IBM goes to market to SMB shops. “We have to have an AS/400-style local and industry approach for all of our sales,” Shearer says. “I have never met a small or medium business that thinks of itself that way. They think of themselves as wine makers, or apparel suppliers, or retailers. While not every industry sub-segment is for every geography, we’re going to focus on geographies and industries and let nature take its course.”

The adoption of VIP across all of Business Systems does not, by the way, mean that IBM is getting out of other means of marketing its server and storage products. The VIP effort is aimed at bringing in new customers to the IBM fold. IBM is still doing plenty of marketing to its installed base through various means (direct marketing, advertising, and such). Moreover, IBM overall is trying to integrate its systems, software, and services sales and make them client facing as well. So eventually, you can expect to see a tag-team effort between Global Services, Software Group, and Business Systems as IBM storms the SMB space.

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