'Partnerships are important'

Richard Smith, vice-president, Asia-Pacific, for IBM Software Group, has one of the company's most enviable jobs. He oversees operations in two of the fastest growing markets: India and China.

As the world's largest provider of middleware, with 30 research labs worldwide (one of which is located in Bangalore), IBM Software Group believes it is ideally positioned to extend its reach in this rapidly expanding - albeit often misunderstood - segment.

Shuchi Bansal caught up with the itinerant Smith who was in the capital earlier this month on one of his quarterly sojourns that coincided with IBM Software Group's tenth anniversary. Excerpts:

How big is the Software Group's Asia-Pacific business?

Worldwide, the Software Group is $15 billion. We contribute one third of IBM's profit. Across Asia-Pacific, we are fairly big with about 5,000 people, including sales and marketing, and those working at the software development labs.

We have about 1,500 people in India, in the software development lab, and almost a similar number in China. In the second quarter, our business in India grew in excess of 90 per cent. I won't tell you absolute numbers here. We are doing very well. Worldwide, in the second quarter, the IBM Software Group grew by 10 per cent. Middleware growth in Asia-Pacific will be about 26-27 per cent.

How would you explain middleware to a layman?

The middleware business always creates some confusion. We are in an area of software which we think really provides the glue between the operating system of an environment and the application space that clients must use.

The best example I can give you -- one, which even my wife can relate to -- is just think of the last time you went to your ATM and took out money.

The reality is that you probably go through 12 IBM software sub-systems: the database technology, which stores the account books, the transaction technology that handles the transaction, the security software that ensures the integrity of the transaction and the communication software the transaction occurs over. These are integrated through middleware.

Who are you competitors?

As we're in the middleware space, we do not compete with application developers. We don't compete with software developers.

A large part of our marketing is done with these guys. We are unlike guys who are into software and compete with application developers at the same time.

IT industry experts were predicting the end of middleware. Your comments.

Personally, I haven't heard people say that the end is near. I think the market and opportunity for middleware is extending. In fact something else is happening here. Many application providers, I won't name them, are looking to extend into the middleware market.

Now some vendors may tell you that the end for middleware is near because you don't need it.

The reality is that you absolutely do need it and we think that it is growing. By the way, Gartner just rated IBM number one again for the fourth year in a row on application integration middleware, which is a key component of this, with over 50 per cent marketshare.

So you are saying there are new players?

There are certainly vendors who are looking to get into the business. Right now, worldwide, there are five to ten acquisitions a month. We, too, have been growing organically and through acquistions. We recently acquired Essential Software two months ago. It is a billion-dollar acquisition for IBM Software Group.

What Essential provides is a very comprehensive set of data integration and management tools. By way of numbers, that particular organization grew in excess of 65 per cent in the second quarter. So, the point about user requirements for middleware expanding and extending is very true.

The dichotomy that many of our customers and clients face today is that I think there are cases where people are buying middleware technology organisations and trying to integrate them into an application environment or vice-versa. This confuses customers, who lose the ability to choose as they are told to take holistic packages, instead.

Do companies find middleware complex and expensive?

For an answer you must look at the growth spectrum of customer types. You have high-end customers with complex environments, and many disparate applications and the need to interconnect those. It is a complex task and it is one of the areas where we have a proven pedigree. We think we have a very good offering at the high end.

Take the small to medium businesses or small software development houses. We recently acquired an organisation called Glucode. It's a funny name but Glucode is an open source application server environment. It is free. Today, our customers can download the Glucode code from the web and install it free of charge. The small to medium enterprise is a $5.9 billion market.

Is that where the growth will come from?

Yes, there is high growth in the segment but the product prices are significantly lower. But it is an important strategy for us to help extend our reach. So, it is about serving a broad number of customers -- existing as well as new.

Any specific companies in India which have used your middleware solutions?

India a great example in terms of customers for middleware deployment as automation never happened from the greenfield level here. We have nearly 400 small and medium enterprises as our customers. We also have large companies such as BHEL, HLL, NTPC and TCS who have deployed our software technology.

We are also working with ISVs (independent software vendors) who will embed our middleware technology in their solutions.  For example, in the last year alone we have invested millions of dollars developing skills, training, technical support and systems to scale up a number of ISVs to help us. So partnerships are very important.

When is your new product, Wesphere7, being launched?

In about two months. It has the latest web services construct built into it. We have made it faster. India will be one of the first markets where it will be released.

Where does India stand in your scheme of things?

India is very important for us from domestic and exports growth points of view. In India, we are working with academic organisations to offer young graduates access to our software technology, training and support. We conduct online courses in IBM technology.

It is also an emerging business market opportunity for us. I am spending a significant part of the funding on extending partnerships here.

Are you investing more in China? What are the differences in the two markets?

I will not answer the first question. We are working intensely to grow in both countries. One common thing between the two is growth. But the markets have different characteristics. The Chinese market is internally focused.

In India, a lot of the software development activity is mixed -- it is focused internally as well as on exports. Clearly, one country has elections and one does not.

But we are much smaller.

The reality is that IT exports from India are bigger than from China. There are significant differences but the reality is that you have two emerging countries that will have a profound effect on the world. India is much bigger in terms of intellectual property.

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