Lotus Buyout Is Just a First Step for IBM : Software: The Big Blue has begun a long battle to wrest industry control from Microsoft, analysts say.
By quickly and deftly turning a hostile bid for Lotus into a friendly acquisition, IBM Chief Executive Louis V. Gerstner Jr. has successfully negotiated the first of many hurdles in what analysts say will be a protracted effort to stand up to former ally Microsoft in the booming personal computer software business.
“IBM is in the midst of a well-organized campaign to wrest back control of microcomputer operating systems and platforms,” says Will Zachmann, president of Canopus Research, a Duxbury, Mass.-based marketing research company. “They want to take back what they gave away [to Microsoft]: the ability to define the industry.”
The rapid acquisition of Lotus and its flagship product Notes gives IBM a strategic advantage in the rapidly growing field of networked computing. Microsoft lags in that crucial market and is about a year away from coming up with a counter to Notes.
Gerstner has defied the critics by executing a rapid turnaround in IBM’s financial performance. Now, with one successful acquisition under his belt and a cash hoard that totals some $7 billion even after the Lotus deal, Gerstner is expected to move ahead on other acquisitions or strategic alliances to strengthen the company’s personal software business.
IBM is already working with Novell and Apple, for example, to develop a lineup of products and industry standards that will provide alternatives to Microsoft’s. An acquisition of either one of those companies might be possible if antitrust issues can be resolved, experts said.
Gerstner’s decision to keep on James P. Manzi as Lotus’ chief executive--and to grant Lotus an extraordinary degree of autonomy within IBM--temporarily lays to rest concerns over culture clashes. It has also brought into IBM’s management an executive still regarded as among the industry’s most capable managers. If Manzi chooses to stay--which many doubt--he could be in line to take over IBM’s wobbly personal computer effort, analysts say.
Gerstner also met with Ray Ozzie, the developer of Lotus Notes, in an apparently successful effort to assure that he and his 75-strong Notes development team stay happily on board.
The speed and smoothness of the acquisition was not only important to boost Notes’ market position before Microsoft catches up, but also to breathe life into OS/2, IBM’s alternative to Microsoft Windows. Although Gerstner reiterated Sunday that the acquisition has nothing to do with OS/2, many expect that IBM will nonetheless push Lotus to develop OS/2 versions of most of its products.
A strong lineup of applications running on OS/2 could be a particularly valuable asset in the event that Windows 95, Microsoft’s long-delayed Windows upgrade, continues to have problems. The Windows 95 launch is now scheduled for Aug. 24.
Although many believe IBM is too late to take a major share of the operating system and desktop markets, it could weaken Microsoft by forcing prices down.
Still, even if Gerstner has proven himself an adept deal maker in the Lotus situation, industry observers still question whether he--or Manzi--has the vision and perseverance to execute a winning strategy over the long haul. Critics say the improvement in IBM’s financial performance has more to do with an unexpected rebound in the mainframe computer business than any strategizing on Gerstner’s part.
“There are questions about IBM’s ability to execute,” says David Coursey, editor of P.C. Letter, a San Mateo, Calif.-based industry newsletter. “If all the losers are aligned with IBM, you might think they are formidable, but it might just be Win95 [Windows 95] versus Lose95.”
While Microsoft might be late coming up with a product that competes with Lotus, Coursey says, the consensus is that whatever it does will ultimately work better than anything IBM comes up with.
“IBM doesn’t have the leadership and dynamism to move quickly, and that will be a handicap,” agrees Jeff Silverstein, editor of the Software Industry Bulletin, a Stamford, Conn.-based newsletter.
Silverstein and other industry observers agree that the forcefulness and decisiveness represented by IBM’s takeover of Lotus brings a new element to the software landscape. Keeping Manzi will help make the acquisition work. But much rides on Gerstner’s ability to make giant IBM dance the quick step necessary to keep up with the PC software business.
Says Silverstein: “It will be interesting to see if IBM’s dynamism translates into better marketing and distribution.”
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