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Q&A with IBM


Big Blue's $6 billion e-change

By Ross Kerber, Globe Staff

The ads are ubiquitous: The television commercial in which members of a focus group complain that they get pitches for products that are completely irrelevant to their lives. One guy stands up, walks over to the two-way mirror, and tells the invisible observers behind it: ''You don't know me,'' as the song ''Getting to Know You'' plays and the observers look chastened.

Or the full-page newspaper ads showing the CEO of a 23-person company wishfully thinking, ''I want e-mail that does more than chat. I want to be a dot com that's open day and night.''

IBM says it can help.

Once known chiefly as a maker of large mainframe computers, IBM Corp. has refocused itself on consulting and programming services in an effort to capitalize on the growth of electronic commerce.

With clients ranging from banks to toy stores, IBM's e-commerce work generated revenue of $6 billion in the first half of 1999, compared to less than $500 million in the first half of 1998. (That figure includes sales of memory chips and other hardware.)

Ed Kilroy is one of IBM's top e-commerce executives, responsible for its overall strategy and for overseeing a staff of about 500 programmers and technicians. A 17-year IBM veteran based in Hawthorne, N.Y., Kilroy was named to his post in July after stints in Canada and Australia.

We spoke with Kilroy recently about how Big Blue has benefited from the shift to retailing and general-business applications on the World Wide Web, and what lies ahead.


Q: So tell me what the term ''e-commerce'' means to IBM.

A: For us, e-business crosses a lot of fronts. We've rearranged our business so it now includes everything from selling on line to our customers, to assisting them from an e-commerce perspective so they can sell products on line themselves.

It started with the transformation of IBM as a whole in the early 1990s. We have a business cycle we like to talk about, starting with talking about exactly what types of businesses should be conducted on line, to building it, then running it, and, finally, leveraging it.

These developments are obvious in our hardware platforms, including servers and database [products]. In the early 1990s, we started to see the Internet and Web enablement as a trend that business was moving down. I think it was a pretty lonely spot when we stood up and said we were doing it; there were not a lot of other firms that were moving down the same path.

We started marketing ''IBM net.commerce'' products in 1996, as our customers were beginning to move to commerce on the Internet, and it's taken off since then.


Q: E-commerce has taken off in the last few years, but for how much longer will we see big rates of increase? Isn't there an argument that the growth rates will level off soon?

A: Well, the demand from our customers is going to make it go up. But I don't want to speculate as to where our customers are going.


Q: Maybe you can talk about what specifically you're selling that you call 'e-commerce'? Some companies, I'm told, use the term for divisions that mainly sell general servers and hardware.

A: IBM goes to market with the perspective that we'll do a lot of work using the consultants who reside within IBM, assisting customers. Often we lead with a consulting engagement, then it might lead to hardware or software sales.

The retailers involved in e-commerce get a lot of coverage, because it's a market that has adopted the technology relatively quickly and it's obvious to consumers. But there are also a lot of manufacturers who are connecting themselves to suppliers in a business-to-business environment.

Then there's connections between manufacturers and distributors, or distributors to resellers.


Q: Which segments are growing the most quickly?

A: To date it has been business-to-consumer, but what's growing most rapidly now is business-to-business. That's because they're not buying one book at a time, they're buying a whole tractor-load. It's kind of a maturing of companies that have [already] gone business-to-consumer.

I think the two are trending to be equal [in size] within a few years. That plays to some of our strengths at IBM, in terms of the technology we have to offer. A lot of our customers have found a need for scalability.


Q: You mean small start-up companies that want to scale up their operations?

A: That, but also the ability of a site to handle commerce even as the traffic increases by tenfold or twentyfold for some customers. We've seen a number of these situations. At IBM, we had a tenfold increase in just one year. So the customers are looking to keep up.

For instance, in a retail environment, as customers tie in their ads with their regular promotions, they're seeing increased traffic. As you do this, you have to understand the impacts and the ability to serve customers. For example, do you have enough square footage and inventory on hand to serve clients [who come in through] the Internet site?


Q: Are there any areas of retailing or business in general that aren't ripe for e-commerce?

A: I think there will be some aspects of e-business [tied to] almost everything we interact with. What's interesting is that you'll be looking at a retail environment with a multichannel approach. You could purchase items from a site, then return them to a bricks-and-mortar location.

This means there has to be a whole new set of policies and procedures as well, to present one [business] front to the customer. What our consultants can do is to work through how to implement these.

This also means looking at interactions between users coming into a site and what type of products they're buying. You have to look at the associations ... and tailor their experience based on their past usage.


Q: It seems like the lines are blurring between technology and marketing.

A: That's true, and the customers we're speaking with are executives who look at this as a tool. There's a tight partnership between the IT (information technology) executives and the marketing executives now. And there has to be, so one side is aware of what the other is doing. It's a change, it wasn't a natural thing to do, in the past, to inform the IT department of the new billboards that you're putting up along the highway. But now you have to.

Ross Kerber is a technology reporter for the Globe. His e-mail address is kerber@globe.com.



 


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