At anniversary, IBM renews on-demand vows

By Stacy Cowley, IDG News Service |  On-demand Software

Sanford is in charge of IBM's internal migration to on-demand systems, an initiative Palmisano hopes will save the company billions of dollars. As the executive most directly responsible for backing IBM's on-demand talk with tangible changes and cost savings, she meets frequently with customers to talk about the strategy.

"There was confusion early on that it was a product, or a utility, or a pay-as-you-go plan. While those elements are clearly pieces of on-demand, on-demand is much broader," she said. "When competitive responses (from other vendors) are very niche, it further exacerbates that kind of misunderstanding. As we spend time with customers, though, this resolves so well. They may not call it on-demand, but they have this attitude exactly. They know they need to flip their companies on their side and get out from running everything in silos."

IBM is responsible for that early confusion, said Forrester Research Inc. Principal Analyst Ted Schadler.

"When they launched this a year ago, it was mostly about getting the vision out. Almost immediately thereafter everybody focused on the utility pricing, the variability of that, which is misleading. It's really about data center cost (reduction). That's where the sweet spot is," he said. "They've spent the last year recovering from that."

IBM has done a good job mapping out its vision; now, it needs to begin talking about customer results, Schadler said. That's what he said he hopes to see Palmisano address in his Wednesday presentation.

One customer pleased with IBM's strategy is American Express Co. The company last year signed a seven-year, US$4 billion services contract with IBM, which assumed management of nearly all of American Express's IT operations.

American Express was in discussions with IBM and other vendors for more than a year before signing that contract, at a time when IBM was in the early stages of pulling together the strategy that became on-demand, according to American Express spokesman Tony Mitchell.

"The whole concept was really beginning to crystallize for them. Based on what it was that we were looking to achieve, and some of our ideas about the agreement, we think we played a role with them in helping them define what on-demand could look like," Mitchell said.

American Express' main goal was flexibility. The company wanted to avoid the expense of a fixed IT infrastructure when it knew its needs would vary.

"We wanted to have our capacity increase in times of high demand, and in times of lesser demand we wanted not to pay costs we didn't need to," Mitchell said. "Our CIO (chief information officer) likes to talk about technology like electricity. You could build your own power plant, but why?"

For customers smaller than American Express, without sweepingly inclusive contracts with IBM, the evidence of the company's on-demand push will show more slowly.

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