IBM sees future in e-commerce

Sabil Francis

agencyfaqs!

NEW DELHI, October 12

Tony Ho's nine-year-old daughter keeps downloading videos from the Internet. "It takes a lot of time, and it costs me a lot of money," shrugs Tony. It also keeps reminding Tony, who is director, personal systems group, IBM Asean/South Asia, of how, when broadband and instant access to the Net become a reality, only those companies with technologically superior offerings will survive.

It's a battle that Tony and IBM are fighting hard to win. With an R&D budget of $5.6 billion, IBM is trying hard to keep up its market leadership. And market strategy at IBM is changing. Moving away from the PC market. And moving into emerging markets like Asia.

"By 2003, e-business worldwide will be worth $600 billion, and customers will demand performance, reliability, scalability, and security. Our servers aim at providing that," says Edward Orange, director, marketing and strategy, Enterprise Systems Group, IBM, Asia Pacific.

Concentrating on the server market in Asia makes sense. IBM has been overtaken by Dell and Compaq, and in 1999, slipped to fifth place domestically and third worldwide as it pulled its Aptiva range of computers out of traditional brick-and- mortar stores. And India is emerging as a major market. NASSCOM estimates that increasing PC penetration could lead to Rs 15,000 crore of e-Commerce transactions in India by 2001-2002, and that by March 2003, the Internet and e-commerce industry would employ over 300,000 people.

IBM estimates that by 2003, there will be 2.6 billion network access devices, including cell phones and devices. E-business will mean a 1,000-fold explosion in the amount of data flowing over the Internet, and that the current infrastructure will not be able to withstand the flood. This is the emerging market that IBM is targeting. "All business will have to scale up without shutting down the server, and for this, they need servers that can upgrade in a flash. The IBM eServer is a product of the company's commitment to support the infrastructure for the next phase of e-business," says Nipun Mehrotra, vice-president, IBM India.

The company seems to be succeeding, in its move away from the crowded PC market into the server market. In the first half of this year, IBM India took the number one position in the server market with 26.2 per cent of the revenue share, according to industry watcher International Data Corporation. The company also shipped servers worth US$ 36.12 million during the same period, and this represented an increase of 93.8 per cent against the revenue achieved during the first half of 1999. It also captured the top slot in the overall server value of shipments, the top slot in the high-end segment and in the midrange segment of servers.

Rivals like Dell have already arrived with much fanfare, and are harping on the advantages of direct marketing and better after-sales service. IBM, on the other hand, is trying to outdo it rivals by harping on its technology. IBM holds more patents than any other company and it alone took in more than $1 billion from licensing in 1998.

The company has made such innovations as the world's fastest SRAM memory, operating at greater than two gigahertz, named the Blue Flame processor, and the Memory eXpansion technology, which can double the memory capacity of servers. In June 2000, IBM was able to overtake its main rival Sun Microsystems in the midrange UNIX server market share, growing at more than eight times the year-to-year rate of its UNIX server rival. This was made possible by the use of performance-enhancing copper chips.

Will such a strategy work in India? Indian markets tend to be less technology conscious and go in for better pricing. IBM server prices are quite steep, ranging from $2,000 at the lower end to $5,000 and above at the premium segment. Upper-end consumers, who value technology above price may be willing to shell out the extra cash, but this premier segment is what every company is targeting. And in the IT industry, technology advantages easily fade away. The company therefore is trying out newer strategies such as investing in local web technology centres as part of its worldwide plans. The plans of IBM include investments in emerging companies, which would use IBM technology. At the same time, IBM does not see a collapse of its market, as dotcom companies go bust. "Everybody has to use a server, right?" asks a confident Mehrotra.

Such confidence will have to be backed with cutting edge technology and ruthless tactics in a fiercely competitive market.

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