Will IBM’s Deals Mean More Web Services?

Big Blue's recent deals with SAP and J.D. Edwards may help it extend functions from the data center onto the Web.
Joseph RadiganJuly 3, 2001

IBM was busy making hay in June, building on existing alliances with SAP and J.D. Edwards. For corporate users, the computer giant’s revamped product-development and marketing agreements promise to add to the Web-oriented features of the software companies’ enterprise resource planning systems.

As part of IBM’s deal with SAP, Big Blue will train its sales force to support the E-commerce system. In return, SAP endorsed IBM’s WebSphere Portal Server for the enterprise portals business SAP launched earlier this year with its $400 million acquisition of TopTier software.

With J.D. Edwards, IBM is configuring a version of its iSeries mid- range server to work specifically with J.D. Edwards’ OneWorld ERP system.

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“My sense is that both of the companies are trying to strengthen their relationship with the last independent provider of databases,” says Byron Miller, an analyst with Giga Information Group.

Oracle has been steadily moving into the financial applications space for years, and SAP has responded by aligning itself ever more closely with IBM. Just over a year ago, SAP named IBM’s DB/2 as its preferred database, a move that undercut Oracle’s existing relationship with SAP. Earlier this year, Microsoft, whose SQL Server database has stolen market share in recent years from Oracle, bought Great Plains, a move that has been interpreted as giving the software giant an entree to the low end of the ERP market.

Miller says, “You’ve got only one vendor in that mix who doesn’t have its own agenda,” in reference to IBM.

The deal SAP struck with IBM all but puts the finishing touches on a 180-degree turn in the German software company’s product strategy. As recently as a year ago, SAP had promoted its ERP applications and related products as something of a one-stop-shop for enterprise applications. While SAP and IBM have had joint marketing agreements for years, the alliance was under some strain, given IBM’s support of industry standards that enable corporate end users to adopt a best-of- breed approach.

In the past, IBM had also strained its relationship with SAP by pushing its own vertical market systems that in some instances competed with the German software giant. But Big Blue abandoned its enterprise applications business two years ago, which was a beginning of the thawing of the ice in the two companies’ relationship.

Since last year, SAP has essentially jettisoned its single-source approach and moved toward the best-of-breed strategy largely because so many corporate end users are already in that camp.

Doug Lynn, an analyst with Meta Group in Stamford, Conn., says, “SAP is clearly taking a more open direction that increases their responsiveness to industry standards.”

SAP has been eagerly seeking an alliance with a provider of an application server that would help it extend its core ERP product into links with business partners, customers, and suppliers, Lynn says. Through a process of elimination, it eventually found its way to IBM.

Lynn says the other leading providers of Web-based application servers all came with baggage that all but ruined any chances for a close partnership. For example, Oracle is a direct competitor to SAP, while BEA Associates already has a close alliance with another SAP rival, PeopleSoft.

As for the agreement between J.D. Edwards and IBM, Greg Runyan, a senior analyst with The Yankee Group, a Boston-based technology research firm, says “J.D. Edwards is pushing its collaborative commerce strategy, which is about integrating externally with partners in the supply chain.”

Kim Stevenson, IBM’s vice president of marketing for the iSeries, says the J.D. Edwards deal will target firms with $50 million to $100 million a year in sales, which both companies have determined is the fastest growing segment of the server market. In many cases, foreign firms have been using local software providers that may not be able to provide a full ERP or manufacturing resource planning (MRP) system. As their businesses have grown, they’ve needed a full-blown enterprise system.

“It’s a market that’s tough to reach, but this deal provides coverage for both companies,” Stevenson says. Firms of this size typically have little or no IT staff, so a pre-packaged system will have a lot of appeal.

“We think that with the iSeries you need a lot less technical expertise,” says Cathie Frazzini, director of worldwide strategic alliances for J.D. Edwards. She expects the co-branded system to be available by the end of July.

IBM’s Stevenson says the two companies will promote connecting mid- market firms to their large customers’ supply chains and business-to- business online exchanges.

Yankee Group’s Runyan says it’s important to remember that growth has been slow in the core ERP market for the last couple of years. The vendors of these systems, such as SAP and J.D. Edwards, have sought to pump some life back into their businesses by extending their functionality out to the Web. That, as much as anything, persuaded them to hook up with Big Blue.

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