Timely Pick

On-Demand" strategies are no flash in the pan. The buyouts are proving

it. IBM's latest takeover of Bangalore-based Network Solutions (NetSol),

managed services and software company that specializes in system integration for

networks, caps a year of sustained application hunting. The management of the

company has, down the year, supplied its huntsmen with a carte blanche to target

companies with strong managements and sound application development might. Not

to mention the possibility of raking up new customer wins in the mid-market

(where legacy systems abound and expensive new server orders are harder to

clinch) as a direct consequence of its buyouts.

This is not NetSol's first engagement with the status of being an

acquisition target. Its consulting team was snapped up by Intel in 2000 to

support the latter's partner base of systems integrators and solutions

providers in incorporating Intel architectures and networking technologies into

data centers.

Over the last four years, IBM has been priming its on-demand strategy to

include the growing wave of IP telephony networks. This intention was clearly

intimated when IBM opened its Network Consulting, Integration and Deployment

Services group in 2002 to help customers plan and migrate their current

enterprise telephone systems to a single network using Internet Protocol (IP).

And, IBM's IP networking partnerships have been notable for the depth of

their market applications, and, ambitions. In February this year, Cisco and IBM

unveiled joint offerings to safeguard enterprise networks against viruses, worms

and hackers. And in July, they deepened a longstanding storage alliance. While,

last month, IBM capped its partnership history with Cisco by announcing that

Cisco's switch modules would be integrated with IBM's servers to improve the

performance of corporate data centers. But where it has really moved ahead with

Cisco is in coming up with a slew of development offerings for converged

networks- where packet voice, data and video can stream over a single system.

NetSol implementation capabilities fit the bill nicely in all the above niches.

Another angle is: Linux clusters would work mightily fine in handling all the

VoIP work over these networks-a possibility IBM will find compelling in the

months ahead as more VoIP customers emerge.

The Yankee Group says that 54% of enterprises worldwide are either testing or

evaluating VoIP for their business. The opportunity for what IBM calls

"business performance transformation services"-a combination of

software, consulting expertise and engineering assistance-is huge. IBM CEO,

Sam Palmisano, had said last year that such services represent a $500 bn market

opportunity, over and above the $1.2 tn that companies worldwide spend on IT

products and services each year. In 2004, IBM took in $3 bn in business

performance transformation services revenue-a 45% gain over its 2003 revenue.

As VoIP applications steadily gain use in businesses, especially those

installing networking equipment for the first time or launching major upgrades,

the NetSol team's experience with customers in the Indian sub-continent will

come in use. The NetSol buyout will help IBM's IP telephony services group,

which also offers network operation and management services, to become more

integrated with IBM Global Services and delegate a larger application portfolio

and a wider range of clientele to the new, wholly owned, subsidiary.

Network services, where IBM can build on NetSol's expertise, especially

with Cisco's products, would include security, performance, capacity and

change management, problem configuration and end-to-end application management

over wireless/wireline networks, server and workstation platforms. IBM's

On-Demand strategy envisages building and hosting applications so that clients

can use what they need on a utility basis. But remember the strategy still

attempts to leverage IBM's phenomenal clout in the Unix server market, while

its DB2 and Websphere range of applications-which also work with open source

platforms-are crying out for fresh air. A wider penetration into the

fragmented SMB services and manufacturing units would help both DB2 and

Websphere find much-needed markets and further push excellent applications like

IBM's Lotus Domino communications suite-while a strong application

management services provider like NetSol will help pilot the IBM's buildup in

"business performance transformation services".

The NetSol buyout is the latest, and by no means the last, buyout aimed at

sharpening the "utility" angle of the On-Demand architecture. In

January this year, IBM had announced its acquisition of Corio, an ASP providing

utility access for Oracle, SAP, Siebel and Ariba applications, to SMBs. It

simultaneously acquired SRD, which makes identity-resolution software.

Widening its vertical expertise has been a key driver of Big Blue's

acquisition binge. The returns from the Danish buyouts in the second half of

2004 have been good, according to IBM. The acquisition of Danish IT services

firms Maersk Data and DMdata have increased IBM's ability to serve clients in

the transportation and logistics industry. Ditto for the consulting and IT

services deals with AP Moller and Danske Bank. It makes sense for IBM to

continue concentrating its acquisition efforts on technologies that complement

its current capabilities. It's busy days ahead for NetSol.

Ravi Menon