Does IBM’s Business Model Even Leave Space for Its Software Clients Anymore?

IBM entering into new licensing deals is nothing particularly new or out of the ordinary. However, their latest high profile agreement is slightly unusual.

Over the past 18 months, Indian firm HCL Technologies has spent nearly $1 billion – around 90% of their total investment – with IBM to license various software applications. What is different? The fact that HCL have been buying access to intellectual property for applications that are (in some cases) decades old. The most instantly recognisable IP acquisition being Lotus Notes – an application that many organisations are actively phasing out.

Other well-known (but ageing) packages that have been farmed out to third party developers include Informix, Tivoli and Workload Scheduler. These former “crown jewels” still have a loyal user base – but that number is shrinking. If HCL has licensed the wrong products they will struggle to recoup their $1.1 billion outlay.

A worrying trend for IBM customers

In the longer term, HCL’s success or failure is of little importance to IBM customers. More concerning is IBM’s attitude towards their own software division. Licensing IP to valuable platforms like Lotus Notes is not just a cash grab – IBM is accelerating their move away from software entirely.

Informix, Lotus Notes, Domino and Tivoli Workload Scheduler are among the products that IBM has outsourced. These new licensing deals strongly suggest that IBM is no longer interested in developing world-class software for their clients.

IBM’s not-so-secret plan

For customers, this move away from software may come as a surprise. But the reality is that IBM has been making veiled references to their changing business model for a while now.

The 2015 Annual Report defines a number of “strategic imperatives” that would receive full funding to help the company regain market share. Importantly, those business units which are not imperative will almost certainly see funding reduced as IBM looks for new spending cuts and efficiencies.

Software is not a strategic imperative.

Existing customers can expect a new hard sell

IBM customers will already be well used to the hard sales tactics adopted by account managers when it comes to renewing annual maintenance contracts. Dire threats about leaving systems “unprotected” are used to convince software asset managers to sign on the dotted line for another three to five years.

But if IBM is pulling out of the (still lucrative) software market, what can customers expect in future? Like the rest of the industry, IBM is hoping to cross-sell existing clients onto new Cloud-based platforms. The margins per licence may be lower, but the annual revenue from a recurring subscription is much easier to predict.

Time to reconsider your own IBM software strategy?

The challenge for many IBM users is that they are heavily invested in the IBM ecosystem. If IBM’s strategy is focused on scaling back development of traditional software platforms, are they forced to migrate to the Cloud? The fact that IBM themselves are clearly no longer committed to the products that power their clients’ business is a strategic concern.

This conundrum becomes even more complicated for businesses who are themselves in the process of retiring older applications. IBM will continue to provide support (within defined product lifespans), but as always, the terms are heavily weighted in favour of IBM. And if your business only needs interim support during a transition to a new platform, IBM will undoubtedly charge for a full year, significantly increasing project costs.

As IBM wash their hands of tried and tested applications like Lotus Notes, Tivoli and Informix, software support customers face an uncertain future. HCL may provide some add-on services for IBM customers, but they remain an unknown and untested option. Fortunately, there does exist a proven alternative for your IBM software maintenance requirements – Origina.

With many years experience of providing third party IBM software maintenance, Origina has amassed an impressive customer list. You can rely on us to provide top quality support no matter how IBM’s software strategy changes in future. To learn more, please get in touch.