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Microsoft & IBM come courting

In the multibillion-dollar business market, Microsoft has challenged IBM to a high-tech duel, one that represents two very different ways for small companies to do computing.

By DAVE GUSSOW
Published May 24, 2006

[Times illustration: Steve Madden]

"The people at Microsoft know our environment, understand what our needs are and help us meet strategic goals,'' said Barber, the law firm's chief technology officer.

Saru Seshadri, on the other hand, is an open source advocate, more attuned to IBM's pitch that software developed by a worldwide community, freely adaptable to specific needs and sometimes available at little or no cost in other words, "open source'' software is better than a proprietary system.

"Creating our own products and solutions, we definitely open up open source as first choice," said Seshadri, president and CEO of Ultramatics, a Tampa firm that provides consulting and services to businesses.

Two businesses, two approaches. But it's not that simple. The contrasting views reached a simmering point in March when Microsoft launched a $500-million campaign aimed at promoting its products - and attacking IBM. Microsoft also is tangling with other competitors, such as targeting Google's dominance of the Internet search market.

The broadside at IBM began something of a corporate mud wrestling match, not the first time the two tech titans have tangled. IBM, said Microsoft CEO Steve Ballmer, is "increasingly a services company.'' Microsoft, countered IBM vice president Ken Bisconti, is stuck "on a pre-Internet software model.''

At stake is more than a war of words: a multibillion-dollar business market, particularly the small and medium segment, which seems to be on an upswing.

The tech giants have similar definitions: IBM classifies businesses with 100 to 1,000 employees as midsize; Microsoft ranges from 50 to 1,000. IBM estimates the small-medium market at $227-billion this year; Microsoft says $130-billion.

The different messages show up in their ad campaigns. IBM's "help desk" ads promote that it can come up with an answer for the most complicated problems.

Microsoft's "people-ready'' campaign touts giving employees software they know how to use and - a key word - empower them to do their jobs well.

In the United States alone, there are 7.5-million small businesses and 320,000 medium-sized ones, seemingly plenty to go around. So why the attack-counterattack?

"We've actually seen a decrease in the number of all Windows shops and an increase in businesses using Linux or Unix after several years of decline," said Joe Wilcox, an analyst with JupiterResearch.

In addition, Microsoft targeted IBM, Wilcox says, because it puts a "face'' on the open source movement. And Microsoft needs to grow its business market to offset flattening growth in Windows and Office.

"Most people who want Office and Windows have them," Wilcox said. "Microsoft has a situation where the market is saturated and fragmented.''

Finding businesses that are totally open source is difficult. Escaping Microsoft, particularly because of the ubiquity of the Windows operating system and Office productivity software, is tough, even for an open source advocate such as Ultramatics' Seshadri.

Ultramatics uses Microsoft products "where it makes sense,'' Seshadri said, and other shrink-wrapped applications that have become popular for businesses, such as Quickbooks.

Open source is more of a progression for businesses as they grow, he says, and as more tech workers become comfortable and available to handle it. That helps reduce costs and improve support, an issue for companies considering open source.

"You can't do things in isolation," Seshadri said.

For Holland & Knight, Microsoft made sense financially, Barber said. The choice saved the firm up to a third on its server hardware, gave it early access to upcoming Microsoft products and provided all necessary support.

Holland & Knight also signed an enterprise agreement, a licensing deal in which larger companies pay Microsoft annually, whether or not new products are coming out.

While some businesses have complained about the costs of the agreement, Barber says it has helped the law firm control expenses.

"We know what our software costs are going to be for a three-year period and know what we're going to spend," Barber said. "At the end of the day, we're going to own all those products."

Smaller businesses without their own tech staffs also are more likely to go with a one-vendor, or Microsoft-type, solution.

"When they have issues between the operating system and database, it's nice to have one vendor to hold accountable vs. a multivendor shop,'' said Tony DiBenedetto, CEO of Tribridge in Tampa, a consulting and services company.

Tribridge is a Microsoft partner, and DiBenedetto thinks its approach is more cost-effective. But he will use other elements if they make sense.

None of that, however, will stop Microsoft and IBM from taking shots at each other.

Bill Veghte, Microsoft vice president for North America, noted during a recent visit to Tampa that he had been competing with IBM for a long time.

"I've never seen them with such a weak product portfolio,'' Veghte said.

IBM's Bisconti points out that his company's software business is $15-billion a year, making it the second largest - to Microsoft. And IBM is cranking up the competition to Microsoft's Office software by beefing up Lotus Notes with word processing, spreadsheet and presentation graphics.

"There are parallels where Microsoft is in the industry (today) and where IBM was in the late '80s,'' Bisconti said. "We were very dependent on proprietary computing technologies that were out of date where some of our customers wanted to go. It's very difficult to let go of a proprietary approach when your business model is so dependent on it.''

Information from Times wires was used in this report. Dave Gussow can be reached at dgussow@sptimes.com or (727) 445-4165.

[Last modified May 24, 2006, 05:53:17]