IBM Shakes Up Its Software BusinessIBM Shakes Up Its Software Business

IBM is shaking up the way it develops and sells software. The computing and services company said Monday that it plans to move away from producing generic business software and will soon begin tailoring virtually all of its offerings and sales efforts to meet the needs of users in specific industries. "It's the first major shift in our software strategy since 1999," says a spokesman, alluding to the year in which IBM exited the applications business to focus on middleware--software that sits between operating systems and applications and facilitates the flow of information among computers within a business.

IBM's software shift is being driven by changes in customers' buying behavior. The company says that, more and more, business customers are looking to buy software that is already configured for their specific industrial needs. "They need to better manage what is unique to their industry," says a spokesman.

The stakes are high. IBM's software revenue, including sales of its popular WebSphere and DB2 middleware and database systems, totaled $13.1 billion in 2002, accounting for more than one-third of the company's total revenue. Despite the risk, industry watchers say the strategy could pay off--if IBM can convince commercial customers that it truly understands their business. However, some caution that IBM needs to ensure its core software technology doesn't suffer as a result of the business-oriented focus. "The commercial software market is still about performance, and best-of-breed often wins out," says Technology Business Research analyst Brooks Gray, who's not counting out competitors such as Oracle and BEA Systems.

As part of its plan, IBM says it will spend millions of dollars over the next year developing numerous versions of middleware and database programs. A spokesman says the company will unveil new offerings for 12 industries as early as next month. IBM will also launch new training programs for its 13,000 software salespeople to give them more in-depth knowledge of the industries they serve.

The company also will partner more closely with independent software developers that can boast a strong presence in industries IBM is targeting, including financial services, health care, and utilities. IBM says it will launch a number of new marketing services for its software vendor partners beginning in January.