FW: Enterprise Strategies Tuesday: IBM to Acquire Rational Software

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Subject: Enterprise Strategies Tuesday: IBM to Acquire Rational Software

December 10, 2002 Enterprise Strategies Tuesday

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IN TODAY'S EDITION:

* TODAY'S TOP NEWS: IBM to Acquire Rational Software
* Companies Recast Platforms for Workload Consolidations
* EXCLUSIVELY ONLINE - Fortune 500 Turning to Russian Programmers

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TODAY'S TOP NEWS: IBM to Acquire Rational Software

IBM Corp. last week agreed to acquire development tools vendor Rational
Software Corp. for $2.1 billion. The deal marks the second largest
software acquisition in Big Blue's history.

**This article is also available on our Web site at:**
http://www.esj.com/news/article.asp?EditorialsID=351

Analysts say Rational's strengths as a provider of robust business
process integration development tools should greatly enhance IBM's
application development portfolio.

According to Stefan Van Overtveldt, director of technical marketing for
IBM's WebSphere Application Server, Big Blue's Eclipse project -- which
describes a common development framework to which ISVs and IT
organizations can write WebSphere plug-ins -- comprises a robust J2EE
development environment.

Van Overtveldt says that as a result of its acquisition of Rational
Software, IBM has extended the reach of its development portfolio to
encompass non-traditional platforms and architectures -- including
embedded devices such as cell phones and medical systems.  "If you look
at the broader thing of what we're trying to achieve here, we're trying
to establish a software infrastructure for what we call e-business on-
demand, [and for that] you need more than just J2EE runtime and J2EE
development."

Additionally, Van Overtveldt points out, Rational gives IBM a means of
reconciling the disparate development worlds of J2EE and the .NET
framework from Microsoft Corp. within a single integrated development
environment (IDE). "Our strategy for the past year has really been to
become a bridging vendor that can bring the worlds of J2EE and .Net
together. With Rational, we have one common development environment for
the J2EE and .Net platforms."

Josh Walker, an analyst with consultancy Forrester Research, says the
upside of [IBM's Rational acquisition] is enormous. First, he points
out, Rational is an undisputed leader in modeling tools. As companies
deploy WebSphere to integrate business processes with Web services and
Web applications, "those capabilities and that expertise and Rational's
install base of developers will be something that IBM will benefit
from."

Forrester recently completed a study in which it found that companies
deploying Web application servers today are typically using them as
little more than glorified Web servers. This is the case, Walker says,
largely because of the complexities associated with most large business
process integration scenarios. Walker thinks that Rational's
traditional strengths as a purveyor of robust code testing tools
doesn't hurt IBM, either. "The more complex the integration scenario,
the more important the need for [testing tools.]"

Most important, he says, is Rational's esteem among developers in all
segments of the enterprise. "Rational is just a solid company. Every
developer knows them. Every developer has some product of [Rational's]
in their toolkit. I couldn't think of a bigger or more significant tool
grab."

Rational, which has 3,400 employees, claims to have a presence in 98
percent of the Fortune 100 -- including IBM itself. Last year, market
research firm International Data Corp. indicated that Rational's
Software Configuration Management (SCM) and Analysis, Modeling and
Design (AMD) tools were the market leaders in their respective
categories.


Whither .Net?

Rational is a substantial partner with Microsoft. It markets a variety
of tools --Rational XDE, Rational ClearCase and Rational Purify Plus --
that support Microsoft's Visual Studio .NET IDE. In addition,
Rational's renowned consulting organization provides .NET-specific
development expertise.

With this in mind, IBM's Van Overtveldt wants to reassure users of
existing Rational solutions that Big Blue is determined to continue
Rational's tradition of broad cross-platform support for a variety of
tools and IDEs. Like the former Lotus Development Corp. and Tivoli
Systems Inc., both of which were acquired by IBM, Van Overtveldt
explains, Rational will retain its brand even as it is folded into
IBM's software division.  "We recognize the leadership that Rational
has, and the part of the industry that they're focused on. That's why
they're being treated as a separate brand in IBM's software division."

Moreover, Van Overtveldt maintains, IBM won't prevent its Rational
software group from developing tools or IDEs that work with .NET,
either. "We are not going to stop Rational [from] providing tools that
work on top of .NET or other Java IDEs." At this point, Van Overtveldt
says, it's not possible to determine if IBM's Rational software group
will devote equal resources to .NET and J2EE support, but he stresses
that IBM is committed to helping developers work with technologies of
their choosing. "We are very, very much focused on being an open
provider of development tools."

Nevertheless, Van Overtveldt concedes, IBM may reduce the number of
platforms that Rational supports depending upon how the market for J2EE
and other IDEs shapes up. "From a strategic perspective, the question
that we do see is that in the Java IDE market there is a consolidation
going on. In the long term, the number of IDEs that we need to support
through Rational will need to be reduced. That is something that the
market will need to sort out."

If at some point IBM should cut back on .NET support in Rational's
tools, speculates Forrester's Walker, the effect could be punishing for
Microsoft. "They have their own tools [Visual Studio .NET and Visual
Source Safe], but in terms of the high-end stuff -- like business
process integration and modeling, for example -- they'd have to build
their own tools from scratch. That's not easy."

According to Laura DiDio, a senior analyst with consultancy Yankee
Group, IBM has staked out a unique position in the Web services space
by pushing J2EE and Java (with WebSphere) even as it has stressed its
willingness to accommodate .NET. In this regard, she says, IBM's
support for .NET could be a powerful competitive differentiator from
the likes of Sun Microsystems Inc. and Oracle Corp. " Technology, like
politics, makes for some very strange bedfellows. IBM and Microsoft
will compete, and bitterly so, on a variety of fronts, but if you
notice, they have both together been promoting the Web services
security standard."


Compelling Synergy

Large high-tech acquisitions are notoriously difficult to pull off. For
what it's worth, Didio says, IBM has an impressive track record in
managing even very large acquisitions. For example, Big Blue's largest
software acquisition -- its purchase of Lotus in 1995 for $3.5 billion
-- has arguably been a success. In addition, the company's 1996
acquisition of Tivoli has borne fruit.

In light of these successes, and with a mind to Big Blue's recent
adroitness in incorporating the resources and technologies of smaller
companies such as Crossworlds Software and Holosofx (among others),
Yankee Group's Didio anticipates that the Rational Software acquisition
will be a big win for Big Blue.

"IBM has experience in doing large scale mergers and acquisitions and
making them work. Do I think that this is going to be smooth sailing
and a panacea? That remains to be seen, but [IBM's] track record has me
excited about this."

-- Stephen Swoyer

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Companies Recast Platforms for Workload Consolidations

In past two issues we've looked at solutions from IBM and Unisys.  In
this, the third and final part of our series, we look at Hewlett
Packard.

http://www.esj.com/news/article.asp?EditorialsID=352

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What do companies such as Boeing, Motorola, Intel, Siemens, Citibank,
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the U.S. Department of Energy, IBM and Zurich Financial Services Group
have
in common when it comes to programming? All are turning increasingly to
Russian offshore resources in preference to India.

Read the new Enterprise Systems case study at:
http://esj.com/features/article.asp?EditorialsID=127

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