Since this will be the third one of these posts, I’ve decided to track the demise ;-) of the traditional software market on a quarterly basis (using IBM’s WebSphere branded revenue as the basis – for no other reason than that’s the part of IBM that I sit in. One day I may look at a broader set of companies, but that day is not today).

IBM announced 1Q07 results last night.

A few points:

  1. IBM Software grew at 9% (or 5% at constant currency: i.e. if currency exchange rates were fixed to equal their 1Q06 rates)
  2. WebSphere branded middleware grew at 14% (or 10% at constant currency)

A few more points from this time last year:

  1. IBM Software had grown at 2% (or 6% at constant currency – note how currency fluctuations can impact a worldwide business)
  2. WebSphere branded middleware grew 26% (or 30% at constant currency)

First, our overall Software business is growing faster now than it was in 2006. Good to see healthy growth of 7%, 14%, 15%, 18% and 20% for Lotus, WebSphere, Rational, Tivoli and Information Management respectively.

Second, we saw very healthy, but slower, growth in the WebSphere branded middleware segment in 1Q07 vs. last year. I stress very healthy because 14% growth is pretty awesome when you’re growing from such a large revenue number, which unfortunately, IBM does not make public. But, if you have access to Gartner or IDC data, you can easily get to a ballpark number of total WebSphere branded revenue.

WebSphere Branded Middleware Quarterly Revenue Growth:

Quarter Y/Y Qtr Growth From:
1Q04 24% Source
2Q04 N/A Source
3Q04 14% Source
4Q04 18% Source
1Q05 11% Source
2Q05 18% Source
3Q05 14% Source
4Q05 4% Source
1Q06 26% Source
2Q06 17% Source
3Q06 30% Source
4Q06 22% Source
1Q07 14% Source

Web Application Server Market:
Some of you may say, “come on Savio, you expect me to believe that in the face of open source competition, the application server business is growing at all? Maybe WebSphere Branded Middleware is growing, but the underlying application servers surely aren’t, right?”

Well, I’m glad you asked. I’m even more glad that IBM is making these figures available. If you go to our 2006 Annual Report and then find your way to page 34 you’ll read:

“Revenue from the WebSphere family of products increased 23.3 percent (22 percent adjusted for currency) and was led by doubledigit growth in WebSphere Application Servers (25.3 percent) and WebSphere Business Integration (22.7 percent) software versus 2005″

Translation: The WebSphere Application Server family revenue growth outpaced the figures that you’ll find in the table above. This is because the table above relates to the 23.3% growth and you’ll notice that the WebSphere Application Server family grew at 25.3%.

So, yes, even in the face of open source competition, the WebSphere Application Server business is growing at 2-3x the market. How? We’re helping our customers address their business needs to achieve success. In some customer situations, we help customers achieve success through the use of WAS Community Edition (WAS CE). In other situation we help customers achieve success through the use of the traditional WebSphere Application Server family.

In the face of open source competition, we got involved in the community, and gave our customers more choice, more flexibility and protected their investments. The results are pretty clear.

“One size fits all” is a great motto for a sock company, not so much for a software company.