IBM UNVEILS NEW NAME, STRATEGY FOR SERVERS

October 6, 2000

COMMERCIAL NEWS

Armonk, N.Y. — Joe Wilcox reports that IBM rebranded its entire line of servers as the company retrenches to fight customer confusion and catch up with rival Sun Microsystems.

The Armonk, N.Y., computer maker also unveiled the first product under its new “eServer” brand: the z900. The long-anticipated server, a replacement for the S/390 mainframe, is IBM’s gambit to catch Sun, which has been stealing IBM e-commerce and Internet sales with its high-end Unix servers.

The eServer line “replaces all the server products we have previously had in the market,” boasted Bill Zeitler, senior vice president of IBM’s server group. In less dramatic terms, it’s a new product label for the major server product lines.

But analysts warn IBM has more to lose than gain in the rebranding and must execute flawlessly just to maintain existing market share. “This rebranding is a real gamble by IBM,” Gartner analyst Tom Bittman said. “What they’re doing is throwing away existing brand awareness and starting over.”

But Bittman concedes IBM has few choices if it hopes to move ahead. “Bottom line is IBM is in third place in Unix servers and third place in Intel servers, and they’re not going to fix that by throwing more and more money at that problem.”

Sun is the Unix server sales leader, followed by Hewlett-Packard, while Compaq Computer and Dell Computer lead in Intel server market share.

“We don’t expect IBM to capture the No. 2 spot in Unix servers over the next three years,” Bittman said. “If that’s what they wanted to get out of this, they’re not going to get it.”

Several issues have limited IBM in selling servers, and the previous multiple brands perhaps top the list, say analysts.

“Traditionally, there’s been a series of products within IBM that overlapped and confused their customers,” said Technology Business Research analyst Bob Sutherland. “So potential customers could end up having a variety of different sales people hawk their servers for the same applications.”

Part of the problem is segregation among product groups. Sales of AS/400 servers and Netfinity, IBM’s line of Intel-based servers, are handled by different organizations. This creates confusion and opportunities for rivals such as Dell or Sun to sell servers alongside IBM’s offerings.

Sutherland said sales and organizational changes that “refocus on the customer need” are vital for IBM. “This is a positive thing, because I’ve always felt customers should understand what they need rather than…seek out from sales people,” he said.

Rich Lechner, IBM’s vice president of e-business strategy, insists the company had already been sorting out the sales issues among the competing server groups.

“Earlier this year, we implemented an integration of our sales force with the creation of a server solution specialist who represents to our large customers all of our servers. So this is just the next step in the evolution,” he said.

IBM for a time will continue to sell existing server lines–S/390, RS/6000, AS/400, Netfinity and NUMA-Q – as e-series replacements are introduced. While the “z” family is the first, others will follow, including the “i” and “p” series.

“I have to emphasize it’s a big gamble,” Bittman said. “If IBM doesn’t invest enough, they don’t get up to ground zero, which is building the same brand equity they already have.”

Crucial to the success of IBM’s rebranding effort will be successful marketing. “It can’t be a three-month, throw-money-at-the-problem program,” Bittman said. “They have to sustain it for a year or more.”

He also warned that IBM most resolve the ongoing sales issues. “If they act the same as yesterday and they just use the name, that’s how it will be received,” he said.

IBM’s Lechner emphasized the rebranding’s broader significance. “This is not just a new coat of paint or a rebranding,” he said. “To be a member of the eServer family has real technical and business significance. There are characteristics that are exhibited across the family.”

IBM will begin selling the first eServer, the z900, Dec. 18. The new server, previously known as the G7, has long been anticipated and represents a dramatic shift in IBM’s marketing and technology focus.

With the z900, IBM also is introducing the new z/OS 64-bit operating system and a means of portioning “virtual servers” within one box.

“Now we have the notion of virtual servers, where the server capacity – whether it be CPU or I/O capacity – is moved to the workload as required,” Lechner said.

“We characterize the z900 as a living, breathing server,” he said. “The customer can define virtual servers within the z900 that will expand and contract based on business needs.”

IBM is positioning the z family of servers for Internet and application service providers as well as for business-to-business e-commerce sites. One problem they commonly face is expanding capacity to meet demand.

“If (customers) receive a spike in Web site hits, that virtual server will grow and system resources will flow to that virtual server to meet demand,” Lechner said. “When that demand ebbs, resources will go back to the other virtual servers.”

With the new servers, IBM also is changing how it charges for software. Customers will pay based on usage rather than a flat fee for an entire server. Bittman praised the scheme, which could cut some customers’ up-front costs.

Customers will be billed monthly based on a “snapshot of what is the largest virtual server,” Lechner said. Usage spikes less than four hours long, such as increased Web traffic, incur no additional charges.

Gartner analyst Thomas Bittman says that although the company is the market share leader in the combined server market, it holds only third place in both Unix and Intel servers – the two primary growth categories.

IBM spent about two years and $1 billion designing the z900, which will also play an important role in IBM’s push into Linux, particularly among Internet service providers, Lechner said.

“With the z900 they can offer customers a virtual Linux server for $500,” he said. “That’s cheaper than anything you can do in the Intel or RISC space.”

IBM also hopes to woo potential e-commerce customers with the z900’s increased I/O capacity, which allows 2,000 transactions per second, or double that of the S/390. When servers are combined in a cluster, that capacity boosts to 64,000 transactions a second, Lechner said.

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