John M. Thompson Japan IT Forum Tokyo April 6, 1995 Version A Thank you and good afternoon. o I'd like to talk to you this afternoon about the new software group we've just formed ... ... and the directions we see for IBM software. o Our objective was to create an integrated software business within IBM. o We're focusing on: - integrating the product plans from our development labs; - creating a tight link between our worldwide software sales units and development ... - ... and building a new marketing organization that's an umbrella over our sales and development. o Now, IBM is the largest software company in the world with $11 billion in revenue. - Only about 20% of that, however, comes from distributed and desktop software. - Even though that makes IBM the third largest in "distributed" software ... we have a lot of work to do. - We know we were late to the client/server and distributed market ... ... and this was one of our biggest mistakes. - But we are focused on client/server and network centric computing now. They're two of IBM's six strategic imperatives. o Our spending on distributed software now represents the lion's share of our software investment ... - Well, we've begun to make some progress. - Last year, our desktop and distributed software grew at 22%, well ahead of the industry pace of 16%. - OS/2 Warp sold 1.7 million copies in the first four months. - It's won numerous awards, including the InfoWorld Reader's Choice award for "Overall Product of the Year" ... ... and best business software from the Software Publishers Association. - OS/2 is also gaining momentum as a server. - More than 750,000 copies of OS/2 have been sold for use as a server operating system. - And OS/2 accounts for more than 50% of the licenses purchased by CIOs for PC servers. - DB2 is now on OS/2, AIX, OS/400, HP-UX and Sun Solaris. - And we sold more than a quarter million licenses in 1994. - Version 2 of DB2 for OS/2 recently won Computerworld's "RealWare Award" as the outstanding Desktop Database and Workgroup award. - Our Networking Software leads the industry. - NetView is now available on all IBM platforms ... it's been licensed by Sun, DEC and Microsoft. - And in a recent "shootout" at the Enterprise Management Summit on the West Coast, NetView for AIX beat out Computer Associates, DEC, HP, Bull and Sun. - CICS, our transaction processing monitor won the LAN Times Reader's Choice award. - And one consultant has predicted that our MQ Series messaging and queuing software will emerge this year as the defacto standard for enterprise-wide application delivery. o So, we've made a lot of progress in distributed software, even though we're really only just beginning. ( SLIDE: 3 WAVES OF COMPUTING ) o So let's take a look at the environment in which our new software company will be operating. - This view of the three waves of computing is based on IDC data which shows the numbers of users progressing ... ... from the tens-of-millions, to hundreds-of- millions ... and the progression to billions is foreseeable. SLIDE: CHARACTERISTICS o Each wave represents a very different computing style. o The first wave, host-centric, was characterized by monolithic hardware systems and customer- written software. o The distributed client-server wave has been characterized by a proliferation of hardware. -- And the software trend has been to buy, rather than make. o In the next big wave, network centric, the network will be the computer, and software will be obtained largely by subscription. o In brief, let me outline our software direction for all three areas ... then take you into more detail on each. SLIDE: DISTRIBUTED C/S STRATEGY o Let's start with the distributed client/server wave, where we're putting our main focus. - There's been a recognition that the C/S model has its drawbacks: - It's expensive ... not yet reliable enough for the enterprise ... and too complex. - Yet, it's clearly here to stay. - Because despite the drawbacks, customers continue to move to C/S as a central part of their business strategy. - They see it as a way to make employees more productive by giving them more access to information ... and to give their businesses more flexibility responding to mkt changes. o IBM wants to be the company that allows customers to fulfill the promise of client/server. - We have unique worldwide customer experience, leadership technology and in- depth system skills. - And with focus, we can better deliver on the client/server promise than those who approach the challenge from the PC end of the business alone. - Our goals are to integrate end user and enterprise applications ... and to reduce the overall complexity and cost. (SLIDE: NETWORK-CENTRIC STRATEGY ) o We also intend to play a leadership role in developing the network-centric wave, which is already well under way. - This will involve extending the client/server model forward beyond the enterprise ... ... to a world where businesses are electronically connected to customers and suppliers ... ... and new ways of doing business are created as everyone increasingly gets connected. o Much remains to be done in enabling software for this new world, both at the client level and in the network. (SLIDE: HOST-CENTRIC STRATEGY ) o Now, it's important that we not forget the host-centric world. - Because customers continue to need large-scale computing. - But they want it to be done in a cost-effective way, and as an integral part of the client/server environment. o So our high-level strategy for large scale computing is to: - Redefine the role of the mainframe to make it a super-server in an open, distributed computing environment. - And we're doing that by introducing competitive technology and open systems capability. (SLIDE: HOST-CENTRIC ) o Now, let's get into a little more detail on our strategies for each of these areas. - Beginning with host centric computing, where our objective is to redefine the role of the mainframe. o Even though the style of computing is changing from host-centric to client/server, the need for large-scale computing continues to grow. - We're seeing strong increases in capacity shipped on high-end systems. - And customers continue to run robust, large-scale applications, but they want to do it in the distributed world. - So we're redefining the large-scale system as an enterprise server: -- a master data repository and high-volume transaction processor. o To do that, as Nick discussed, we're moving the hardware to parallel CMOS enterprise servers. o And in software, we're enabling the MVS world for the parallel environment. - We're moving all our subsystems -- DB2, CICS, IMS, VSAM, etc -- to parallel editions ... ...so that customers don't have to modify their applications to take advantage of the new hardware platform. o That way, customers can preserve their trillion dollar investment in industrial strength applications ... ... And get the price-performance of microprocessor-based technology ... ... while being able to scale from 10 MIPs all the way up to 10,000. o We can also provide new functions with our large systems, including data warehousing and data mining. - Last week, we announced a new multi-media digital library initiative. o To make our large systems more open for use in the distributed world: - We've announced MVS Open Edition with the Unix APIs on S/390. - We'll be fully DCE-enabled over the next 12 months. - And MVS is a full participant in the common object strategy across IBM. (SLIDE: CLIENT/SERVER ) o Now, let's move on to our main focus, which is to be the company that fulfills the promise of client/server computing. (SLIDE: S/W OPPT'Y ) o Software represents a huge opportunity -- at $93 billion in '94, it's about 20% of the I/T industry. - It's growing at 11 percent. - It's highly profitable, with stable margins. - And the growth is primarily in the desktop and distributed area. - This is just as true in Japan as it is elsewhere. o We intend to participate in the full range of this opportunity. (SLIDE: S/W OPPT'Y) - In vertical applications, our primary strategy is to partner with independent solution providers as well as with our own Industry Solution Units, who work with our largest customers on custom solutions. - In systems software, including operating systems, middleware, and some horizontal application areas, we plan to develop our own. - That segment represents about $54 billion in opportunity in 1994 ... growing at double-digit rates. (SLIDE: COMPETITORS ) o When you take a look at the system software by market segments and by large and small systems, you can easily see where IBM has been positioned vis a vis our major competition. - IBM is strong in the medium and large enterprises where decisions are made tops down. - We've also got a good AS/400 and RS/6000 activity in the small business segment. - Microsoft is well positioned with consumers, small offices and autonomous workgroups within enterprises. - Novell's strength is in small and medium businesses and autonomous departments. - And HP has larger servers in both segments in the enterprise. o So what we want to do is move down into the areas along the bottom of the chart where the growth is -- particularly in the small business and autonomous workgroup segments. (SLIDE: BUYER PREFERENCES) o Now, if you look at buyer preferences across the market segments, you see the traditional large system buyer ... -- typically the CIO in a large enterprise -- ... is looking for industrial strength characteristics: - manageability - interoperability - scalability - and development productivity. o And end users, who drive the buying decisions in small businesses and autonomous workgroups in enterprises, are looking for: - ease of use - integrated packaging - and the availability of personal productivity and groupware applications. o Now, if we're to fulfill the promise of client/server, we've got to satisfy both sets of needs. o So our focus is to bring our strong enterprise capability to distributed systems -- and to be much better at serving end users. (SLIDE: OPEN BLUEPRINT) The first of our initiatives is Open Blueprint. This is an architected approach that brings all of IBM's classic strengths ... like manageability, interoperability, and robustness ... to client serving. These are all the features that appeared in that upper right-hand corner of the last slide. And unlike systems that are architected just for the desktop or local area networks ... these features improve the whole integration of end-user applications ... with line-of-business systems. Our emphasis is on Open ... so that we can interoperate consistently across all of our platforms ... as well as across non-IBM systems, that comply to these standards. Our emphasis is also on Distributed ... meaning that data, applications and services can reside anywhere in the network ... not just locally. Now, "Any Client" means that our servers will excel at supporting any of the popular clients ... Windows, OS/2, Mac or Motif. "AnyNet" means that our communications protocols are transparent ... so that applications don't need to know what physical transports they're running over. And "Any Server" means easy access to servers across the network ... no matter what brand they are ... as long as they comply to open standards. Finally, we believe that the key to cost control in the client server environment is Systems Management. Here, we are building a common set of pre-integrated packages for each operating system ... under the code name "Karat" ... for delivery this year. Our objective is to bring new levels of ease-of-use to network administration, backup, and trouble management. (SLIDE: COMMON OPERATING SYS. COMPONENTS) So now let's turn to the Operating Systems themselves. The way that we are building the Open Blueprint functions ... as well as adding new capabilities like object technology ... is through the use of common building blocks ... shared across all of our systems. This approach is designed to deliver the interoperability, scalability and portability as well as improved time to market. Internally, we used to call these building blocks our "Workplace Technologies" ... but we dropped that terminology because it was confusing ... especially as we begin to ship these systems under different names. The top of this chart shows that we are merging our object based Workplace shell from OS/2 ... with the new standards from the UNIX world ... to create a common desktop for applications. Applications can be coded to an increasingly common set of procedural APIs. For instance, the 1170 UNIX APIs ... which exist on AIX today ... are being implemented on MVS, OS/400 and OS/2. And the most popular 32 bit Windows APIs are being incorporated in OS/2. They are also supported in AIX through Windows emulation. More importantly, to greatly improve the speed of application development ... we are implementing leadership object technologies ... in a consistent way across all of our operating systems. This occurs at three levels. At the first level, the System Object Model, or SOM, is the foundation that provides our systems with the ability to integrate objects into complete applications ... regardless of which tool created the object. SOM is based on open industry standards and is supported by over 20 major vendors. DSOM is an extension of SOM ... that allows objects to be located anywhere in a distributed network ... rather than just locally. At the second level is OpenDoc ... which is an object parts manager ... used by application programmers. It allows a software package to integrate multiple data types into a single compound document. For instance, to integrate text from a word processor ... a graph from a spreadsheet ... and video from a media player ... all into one document. At the third level is a complete set of object frameworks ... which promise new ease and speed for application development. We have selected Taligent "Common Point" as the framework standard across all our systems. It can be used by application developers, systems integrators, and eventually end-users. The center bar in the chart ... called "Middleware and Tools", refers to common code bases that are being created for all of our major subsystems. For instance, DB2 now comes in seven flavours ... DB2 for OS/2 ... for AIX ... for OS/400 ... and for MVS ... as well as versions for Windows, HP/UX and Solaris. So that's a brief description of our operating systems story. Our objective is to get to the point where developers and customers. They'll be able to write applications once for use across all our operating systems -- and competitive ones as well. (SLIDE:AD) Our application development strategy has been refocused on the distributed, client server environment. Its objectives are twofold: First, to provide flexibility through tools that are independent of the platform ... and independent of the network topology ... This allows programmers to decide where in the network the data, applications and services should reside. The second objective is to improve productivity with new technologies like object programming ... in a way that allows the integration of new applications with legacy systems. To accomplish this, we've created a complete set of offerings for teams of developers ... to design, build, and manage applications. For design, we have just added process modeling to our existing data and design modeling tools. And, object oriented modeling will be added shortly. All four together provide a complete set of tools ... to validate business processes and prototype logic before writing code. In the build area, we have incorporated visual construction techniques ..across a broad set of languages and power tools. We have also enabled "construction from parts" in many of the tools ... by adding object oriented capabilities to them. And we've enabled all of the languages to target a broad spectrum of client server platforms ... all of IBM's and many non-IBM ones. And then in the management area, we've created a number of new products ... like Team Connection, and DataAtlas ... that manage program and data assets across teams of developers .. who may all be at different skill levels ... and be using different tools. In addition, these management systems can integrate information models from many of the most popular non-IBM design tools in the marketplace. (SLIDE: WORKGROUP) Now let me move on to Workgroup Computing. The productivity benefits of using desktop packages ... like word processors, and spreadsheets ... are now extending into workgroup computing, where people can work together collaboratively to increase productivity. This has grown from simple file sharing ... through electronic mail ... to the use of shared databases. But it is now time to take the next step, which is to make the overall business more productive ... by tying personal productivity, workgroup and line-of- business applications together. To do this, the next generation solutions need to be ... secure and dependable ... they need to fit into existing business environments ... and they need to reflect the way that people actually do work. The IBM Workgroup is an integrated palette of applications that range from ... communications, like mail and directory ... to information management of multimedia libraries ... through work management like task scheduling, forms-routing and workflow. We're focused on the three main functions seen here. Providing new collaborative tools that can be integrated with existing, line-of-business applications. Providing communications ... not only among people for things like mail or video ... but for applications ... through sophisticated messaging systems that can support an order entry process, or a customer support system. And thirdly, providing coordination for the effective management of work ... to ensure that business activities happen in the right sequence ... are assigned to the right people ... and come with the necessary information. Our strategy for the IBM Workgroup portfolio is to provide all of these core functions. At the same time ... through the use of standard APIs and gateways ... we have built in the capability to interoperate with existing industry products such as Lotus Notes, c.c. Mail, MS Mail or OfficeVision. We have also created IBM Workgroup client software for Windows, MacIntosh and Motif as well as OS/2. And our workgroup server packages will be available on all of our platforms, as well as those supported by HP, Sun, Novell and Microsoft. (SLIDE: INTEGRATED PACKAGING) One of the most important ways of fulfilling the promise of client server is to make it far less costly to install, use and maintain. We know from the studies all of you have done, that despite the low acquisition costs for these systems ... the 5 year bill is 50 to 60 thousand dollars per seat ... or about double the cost of host centric systems. In addition, almost 70% of the customers surveyed said that installation took considerably longer than planned. We know from our experience in IBM ... with pre- integrated systems like the AS/400 ... and with pre- loaded PCs ... that packaging can greatly lower customer costs and install times. We have great technologies ... the best 32 bit desktop and PC application server ... the best database ... the best transaction processors ... and the best systems management. But these all come in the form of hundreds of products that require too much skill and effort to put together ... especially for users in that lower left corner of the market segmentation I showed you. So we are in the midst of taking a leaf from the AS/400 book, and creating more integrated packaging for our AIX and OS/2 clients and servers. We plan to release ... this year ... OS/2 and AIX server packs ... that include all the necessary file, print, LAN support, and systems management ... for small and medium businesses. We will also produce an extension to these packages for more advanced enterprise servers. At the same time, major pre-integrated subsystems for database, systems management administration and IBM Workgroup will be available as options. (SLIDE:) On the client front, we're within a month of shipping "Warp Connect" ... which is a preconfigured LAN client ... complete with Lotus NOTES Express, Internet support, and other business applications. The Warp Connect Plus package includes IBM Workgroup software, among other new features. You can see from the slide that we also plan to offer the client packages on a Windows base ... to improve their affinity to open servers. (SLIDE: SOFTWARE DEVELOPERS) o Now let's turn to our programs for software developers. - Ultimately, buying decisions are driven by applications. - So it's imperative to have packaged client/server applications on your platforms to succeed. o So we've created a new software developer support organization under my namesake, John W. Thompson. - John has a worldwide mandate to bring consistent technical support, marketing and relationship programs to our ISV partners. o And we're beginning to work more effectively. - Our first cross-divisional Technical Interchange conference for developers will be held in May, offering 300 technical sessions to 3,500 developers. o Now, John's organization recently launched an initiative called Project Springboard ... ... to accelerate the development of 32-bit applications on OS/2, for both Intel and PowerPC. - We've got a compelling story for moving to OS/2 today. - Warp is generating market momentum and excitement. - An installed base of over 8 million is now a large market to target. - And Windows95 is late. - We're targeting three segments: - Desktop productivity apps. - Server industry applications. - And small office and home. - So we've put together a shared risk/reward plan for developers in which we both participate in development and marketing investments. - Developers also get special assistance in porting their apps to OS/2 ... ... including the use of SMART tool, which can automatically migrate most of a 16-bit Windows application to OS/2. - In its first 90 days, Springboard has 11 major software developers with 27 exploitive 32-bit apps for OS/2. - These include Computer Associates, Corel, Sybase, and Macromedia. - Stay tuned for more press releases in coming weeks. (SLIDE: NETWORK CENTRIC) We believe that the next wave beyond distributed client serving ... will be Network Centric Computing. This is a world in which the network becomes the computer. And a single client can access a vast network of computers as if they were a single entity. Everyone ... and everything from mainframes, to laptops, to Coke machines can access the network. And the content, services and applications offered will be on a pay-as-you-go, subscription basis. From a software point of view, a lot of enabling needs to be done at both the client level and within the network itself. (SLIDE: NETWORK CENTRIC) First of all, the human interfaces to computers need to be simplified to enable the next tier of users. The days of scroll bars and mice will have to give way to more intuitive front ends like Mosaic on the Worldwide Web. And new human-centered technologies like speech, pen, actors and agents will go a long way to help. Open standards need to be extended for the network- centric world ... in the area of directories, security, application interfaces and component parts ... to name a few. And new software within the network itself needs to be created. Broadband enablement for midware is a good example ... as well as packaged software that turns a company's general purpose server into a network node ... that can offer a service for subscription fees. Finally, extensions to application development tools are needed to provide programmers with the means to easily create network-centric applications. We are thinking through all of these extensions as we build the distributed client/server software that I talked about earlier ... so that we will be in a position to lead the next wave of computing. (SLIDE: MARKETING) o Now, before concluding, I want to say a few words about how we're going to market. - No matter how well we do with the product directions I've laid out this morning... ... we'll fail if we don't effectively bring our products to market. o We must surround our solutions with effective sales, distribution and support ... ... and most importantly, with professional marketing that integrates development and sales with customers' needs. o We've now established a worldwide software marketing function across all of our product organizations. - And we're also beefing up sales support. o We've named a single software executive in each of our four geographic marketing areas ... ... and we've identified a single software executive within each marketing area or country. - So for the first time, all our software specialists will report into a single worldwide structure. o We're also implementing advanced distribution technology using networks and satellites. - For example, we have a software retail kiosk project that involves downloading software via satellite to retailers and wholesalers. - We also began field trials in December to use satellite services to deliver corrective and preventive software maintenance files to large customers. (SLIDE: CONCLUSION) So that's a look at our software directions. We're redefining the role of the large system to make it an enterprise server in the client server environment. We're focused on the distributed software environment so customers can benefit from the true potential of client/server computing. And we're working to extend the model to the network-centric wave of computing. Thank you. Now, I'll be glad to take your questions and comments.