Why the Internet Is Boosting IBM's Mainframe Sales 1999--THE YEAR OF THE MAINFRAME?
(FORTUNE Magazine) – IBM is betting that the Internet will boost its once-waning technology: the mainframe. The company's CICS mainframe software (pronounced "kicks")--which manages transactions like selling and shipping products, billing customers, and trading stocks--is the most powerful and profitable in its class. As Internet standards are adopted by businesses, the number of these electronic transactions is exploding, and a variety of different computers is required to execute them. CICS, an applications server, synchronizes these processes so nothing goes wrong. "We see a trend to move applications back onto the mainframe because it is more cost-effective," says Rob Lamb, a senior manager at IBM overseeing CICS.
IBM is aggressively marketing the 29-year-old CICS, trying to convince customers that it is a key technology for the Internet. The push makes sense: Sales of CICS help IBM pull in billions of dollars of revenue in hardware, additional software, and outsourcing and maintenance services.
In the short term this seems like a great play. Lamb and IBM marketing manager Neil McHugh say that sales of CICS on mainframes exceed $800 million annually and are growing at a rate of 13% to 14%. Sales of applications servers that work with nonmainframe computers are less than half those of CICS alone. That includes systems that work with Microsoft's Windows NT software and Unix operating systems like Sun Microsystems' Solaris.
Lamb and McHugh scoff at the competition, saying that CICS is the only program that provides the kind of reliability FORTUNE 500 companies insist on. McHugh calls it "amusing" that Microsoft's Windows NT operating system gets so much press, since it can't handle as many users. "[Microsoft] hopes to be able to scale to 1,400 concurrent users in 1999, while we today handle 250,000 at a time," says Lamb. The duo brag that Charles Schwab uses CICS for its stock-trading Website, which handles more transactions than any other on the Internet.
But much of the rest of the industry is skeptical of the long-term viability of CICS, saying it's based on an antiquated model. While CICS shows healthy growth, sales for other applications servers are growing at a much faster pace. "We don't believe that transactional capabilities should only be the domain of horrendously expensive mainframe systems," says Vic Gundotra, a Microsoft manager who works with developers who build products to work on NT. Even Gartner analyst Yefim Natis, a fan of CICS, sees sales eventually slowing, since IBM isn't attracting new customers, just outfitting current ones with expensive upgrades. He expects customers to increasingly combine CICS with other applications servers.
If this prognosis is true, CICS may not be a long-term bet. Says Bill Coleman, CEO of BEA Systems, a competitor that sells applications servers for NT and Unix: "It's like somebody in 1905 saying if we just put 20 horses in front of this wagon it will beat your car forever." CICS may be a dinosaur, but it remains a lucrative one for IBM.