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IBM cashing in on e-commerce, Gerstner says

IBM cashing in on e-commerce, Gerstner says

About 25 per cent of IBM's revenues - some $US20 billion -- are being generated by demand for what the company terms "e-business projects", IBM's chairman and chief executive officer Lou Gerstner said in a teleconference last week.

"It's worth noting that IBM is already generating more revenue and more profit (from e-business projects) than all of the top Internet companies combined," he said, adding that the top 25 Internet companies, such as Yahoo, Ebay and America Online, generated a combined $US5 billion in revenue and lost a combined $US1 billion in 1998.

Ford Motor, Charles Schwab & Co. and United Parcel Service of America are among the companies spending on IBM products to build projects the goal of which is to integrate Internet technology into a company's business processes, Gerstner said.

Schwab will have increased its spending on IBM products - such as S/390 mainframes, RS/6000 servers and DB2 databases -- for its online stock trading Web site six-fold in the past three years by the end of 1999, Gerstner said.

Ford is investing "almost all" of the $US300 million it allocated for a project to develop and deploy new Web applications on IBM equipment, he said.

IBM is also increasing the number of sales it makes via the Web. The company sold $US3.3 billion over the Internet in 1998, and expects that figure to rise to between $US10 billion and $US15 billion in 1999, he said. Just in the first quarter of 1999, IBM sold $US2.5 billion over the Web, he said. In December last year, the company was selling about $US38 million per day via the Internet.

The Web is also helping Big Blue's bottom line. This year, the company plans to save $US600 million by providing service and support to clients over the Web, and $US100 million by offering training via the Internet to its employees. IBM also plans to buy $US12 billion worth of goods over the Internet, eliminating the need to generate over five million pieces of paper.

The real Internet revolution is not tied to hot-shot companies like Amazon.com, but to the adoption of the Internet by regular companies for doing business, according to IBM's chief. That revolution will come "when thousands and thousands of institutions that exist today seize power of this global computing and communications infrastructure and use it to transform themselves," he said.

"Amazon.com is a very interesting retail concept, but wait until you see what Wal-Mart is gearing up to do," he said, without offering any details.

A lot of attention has been placed on Internet sales, but those are just part of doing business over the Web. Companies need to rearchitect their business processes and their IT infrastructure in order to Web-enable all their supply chain processes, such as inventory, replenishment, fulfillment, distribution, services, support and accounting, he said.

"Web-enabling these core business processes will deliver returns on investment that will equal or exceed the returns on investments coming just from e-commerce," he said.

Most IBM customers understand they must Web-enable their business processes, but they need help in doing it. This is leading to what Gerstner calls "a gigantic services opportunity".

"Our consulting business is inundated with requests from companies asking us to come in and work with them on their e-business strategy. It's the principal force behind double-digit growth in our consulting business," he said.

The worldwide market for products and services for Internet-related projects is expected to grow at a 20 per cent annual clip, Gerstner said, adding that 60 per cent of that money will be spent on services. IBM expects to generate $US3 billion in revenues from "e-business" services in 1999, a 40 per cent increase over last year, Gerstner said.

Looking ahead, IBM is keeping an eye on the trend toward what the company calls "pervasive computing devices". This market is defined as everyday items, such as cars, and common places, such as homes and schools, that, equipped with embedded chips, will feature computing powers and connectivity.

IBM is also interested in the market for high-end computing for non-scientific tasks, like analysing data, he said.

In terms of its overall product and service offering, IBM continues to bet heavily on services. The company has been averaging about $US10 billion worth of new service contracts for the past three quarters.

IBM has signed more services contracts in the last four quarters than either Electronic Data Systems or Computer Sciences have signed in the last 3 years, Gerstner said. IBM's services unit currently has 130,000 employees and expects to add another 18,000 in 1999, he said.

International outsourcing is also picking up speed. Of the 38 outsourcing deals IBM closed in 1998 worth more than $US100 million, almost half of them came from outside the US, he said.

Meanwhile, IBM's Web hosting business is growing at about 100 per cent per year, he said.

Gerstner also said that he doesn't think that the PC is dead, but rather that the era of the PC as the main focus of IT investment and innovation is over. The PC will continue to be an important part of companies' IT infrastructures, but the key IT element now is the network, he said.


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