The IBM Internet Division

In my long career at IBM I have held a number of interesting positions, perhaps none more interesting than general manager of the Internet Division.  The Internet Division was created ten years ago right around this time, so I have been reflecting on what those times were like for me personally, and more generally, what their impact was on me and IBM as a whole.

While the Internet had been around as a DARPA-sponsored project in the research community for a number of years, interest was building up in the general public culminating with the Netscape IPO on August 9, 1995, whose very high valuation took the world by storm, including us in IBM.  Former IBM Chairman and CEO Lou Gerstner wrote about this period in IBM in his excellent book “Who Says Elephants Can't Dance?”.  "By the fall of 1995 ... I decided to make network-centric computing the centerpiece of IBM's strategic vision," he says on page 171.  Lou commissioned a team to recommend how IBM should best pursue such a network-centric computing strategy.  It was led by Dennie Welsh, who enjoyed tremendous respect within IBM as leader of our services business.  As Lou says, "the single most important outcome of Dennie's task force was a recommendation to commit the resources of the entire company to lead this next wave of computing -- to mobilize on every front."  Lou then decided to form a new, cross-IBM group to lead this strategy. 

At the time, I was general manager of the RS/6000 division, our UNIX systems business, which has since been renamed pSeries.  On the Tuesday before Thanksgiving 1995, I was having a strategy meeting with the RS/6000 executive team in Armonk when I got a message that Lou wanted to meet with me the following Monday.  When we met that Monday, we talked about Dennie's task force, with which I was familiar, having participated in some of its work.  Lou then told me about his plan to create a new division to coordinate our efforts across the company and asked me to lead it, reporting to John M. Thompson, then head of our Software Group and a top strategist in the company.  I pointed out to Lou that I had been in my RS/6000 job for only six months, that we were going through some very rough times because our Power micros had fallen behind those of our competitors in the UNIX market and that I was worried about stepping out at such a sensitive time.  He said that he had thought of all that and still wanted me to head this new division,

So I did, and shortly after that meeting we announced the formation of the Internet Division in IBM.  One of my first calls as soon as I left the meeting with Lou had been to John Patrick to ask him to work with me in organizing the new division and our Internet strategy.  John understood the power of the Internet and the impact of the near-universal connectivity it was ushering in better than just about anyone else, and he had been working tirelessly for a number of years to get IBM involved with the Internet.  John became VP of Internet Technology and was a crucial partner in everything we did over the next several years.

A lot was starting to happen around the Internet, but it was not clear where things were heading, and in particular what the implications would be to the world of business.  Our job was to figure out the business value around the Internet, what we should advise our clients to do and what new products needed to get developed.  Equally important, we needed to come up with an Internet business model for IBM that made sense and was financially sound.  We worked through 1996 to figure out what our strategy should be, and towards the end of the year the picture began to emerge.  Let me summarize what we did and the lessons we learned by discussing the three major directions we took.

Learning in the Marketplace

What made the Internet job different from just about any other I had had until then is that there was no one technology or product you could work on in the labs that would make you a success in the marketplace.  In fact, we developed several Internet-specific products, a number of which we eventually gave up on.  We had a browser for a while, but early in 1996 decided not to get involved in the browser wars then raging between Netscape and Microsoft.  We had an http server for a while, but eventually gave it up and embraced the open Apache http server and built our very successful WebSphere family of offerings around it.  We built a number of security offerings, content distribution services and IBM-branded commerce sites, but it became clear in the course of 1996 that while some of them could enjoy limited success, they would not lead us into the leadership position we were after. 

This time around, the strategy had to come from the marketplace, not the labs.  This was new for us -- and for me personally. Watching what our customers were doing, it started to become clear that the Internet was going to have a profound impact on business.  The universal reach and connectivity of the Internet were enabling access to information and transactions of all sorts for anyone with a browser and an Internet connection.  Any business, by integrating its existing databases and applications with a web front end, could now reach its customers, employees, suppliers and partners at any time of the day or night, no matter where they were.  Businesses were thus able to engage in their core transactional activities in a much more productive and efficient way.  And they could start very simply, initially just web-enabling specific applications and databases.   

Thus was born our e-business strategy.  We truly came up with it by watching and learning from what was going on in the marketplace, and adjusting our products and services to make sure that we were helping our customers leverage the Internet for business value.  In fall 1997 we also launched a very creative marketing campaign to get the message out and encourage every enterprise to become an e-business. 

Every business would benefit from embracing the Internet - not just startups

Of course, the Net didn't just make existing business processes more efficient; it also made new business models possible. As the Internet frenzy started to pick up intensity, people were experimenting with many new models -- some of which turned out to be very innovative, and some rather silly.  Part of the buzz in the air was that in the Internet-based "new economy," born-on-the-Net startups had an inherent advantage over existing,"brick-and-mortar" businesses.  Because of their grounding in the physical world, it was thought they could not possibly compete in this fast-moving digital space and were therefore headed for extinction.  I still remember a conversation in Paris in 1997 with the CIO of a major European retail chain who told me that they had just spent a lot of money remodeling their stores and were wondering if they had done the right thing, given all this "new economy" talk.  We were at a meeting in a very nice hotel, built in the mid - 19th century, and I remember answering as I stared at the beautiful painted ceilings in the conference room, that in my opinion the digital world would not at all replace the physical one, but that they would both nicely co-exist for a long time to come. 

In our e-business strategy we said that the brand reputation, customer base and IT infrastructure that businesses had built over the years were even greater assets when properly combined with the new capabilities offered by the Internet.  We really believed then, and continue to believe now, that the Internet was the beginning of a profound business and societal revolution with the potential to alter the shape of businesses, industries and economies over time. But it was a transformative, not a rip-and-replace, revolution.  After the dot-com bubble burst and the IT industry went into a deep funk, we continued acting on our beliefs and embracing Internet-based technologies and services, as we have been doing with our On Demand strategy.

Embracing the Internet “Culture”

IBM, like many large businesses, used to be very inward-looking, preferring to do everything by ourselves if at all possible.  Embracing the Internet, its open standards and overall outside-in approach turned out to be much more than a technology change for us.  I think it had a very big impact on the overall culture in IBM, as it did in many other companies.  It truly made us much more open -- e.g., embracing new technology ideas from external communities, as we did with Apache, Linux and Grid.  It paved the way for a much more collaborative approach to innovation, as exemplified by some of our recent announcements around the management of our intellectual property. It helped us better integrate our people and activities around the world, to become more productive and to better support our clients.  In short, embracing the Internet turned IBM, as it did so many other businesses, into an open, globally integrated enterprise, far more ready for business in the 21st century than we ever were before. 

For me personally, my career has most definitely taken an “Internet culture” turn ever since those days.  My next position after the Internet division was leading IBM’s Linux initiative in 2000.  While many were initially baffled by IBM’s embrace of Linux and open source in general, I viewed them as a natural consequence of the Internet and WWW, which made it possible for smart people all over the world to work as a community to develop and support different aspects of the shared IT infrastructure that the Internet and open standards have made possible. 

In my present position I spend a lot of time focusing on the forces of innovation, which I view as a natural consequence of our Internet age, as I wrote in this blog story:  “Ever since the Internet hit the mainstream in the mid 1990s, we have seen more and more innovation coming from people working together in open communities, something we have been calling Collaborative Innovation.  This is no accident, as the Internet and everything around it have proven to be a wonderful platform for people to come together from all over the world and collaborate on whatever problem they all agree to work on.”

This very blog, which has become such an important part of my life in the last six months, is another example of the power of the Internet and WWW.  “The rise of blogging needs to be viewed in the context of individuals now being able to much more easily contribute content to the growing Web,” I wrote in a recent posting on the subject.      

Getting involved with the Internet, and the technologies, standards and culture around it ten years ago, turned out to be not just a really good market-facing decision, but one that ended up having a very positive, transformative impact on IBM itself -- as well as on my own professional career. 

Comments

[Julie Ruston]

Just finished reading your blog entry on the IBM Internet Division....thanks for taking the time to share your insight & thoughts on that very important phase in IBM...very useful summary for all IBM'ers to read....JR

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Hi Irving, I don't believe that the Internet Division exists anymore. I'm wondering if you'd let us know which current IBM groups grew out of the Internet Division? My guess is the Emerging Technologies group, but that's just a guess.

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