IBM's Adoption Plan

At 6’2” Mike Riegel fills the conference room. Well, almost. Standing in the centre of the packed room on the first day of India’s first Smart Camp, he gives an account of IBM’s decade-long partnership with start-ups around the world.

Smart Camp is a relatively new event that will travel nine countries. The judges, or mentors, as IBM calls them, will select an India winner from five short-listed start-ups from among 230 applicants. The finals are in November, which gets the winner global publicity and access to IBM’s resources.

“Rely on mentors; ask questions rather than make statements; learn to make connection across business models,” he advises the entrepreneurs. “Question them to see if they anticipate things — competitive threats, and market changes; give coaching on what unique customer problem they are solving,” he suggests to the 25 mentors.

Riegel, a vice president who leads IBM’s global start-up programme, might be saying the same lines for the nth time, but he makes it sound earnest, even fresh. After all, greening the planet is Big Blue’s dominant theme for the next-generation of customer solutions. “That’s our whole company strategy; we’ve articulated it to our shareholders,” says Riegel.

As a result, IBM’s start-up programme, which was quietly started in the dotcom boom of 1999-2000 to sell products to the bootstrapping companies, is now being taken to the next level, complete with global branding and marketing. And this is serious business as IBM gets a third of its $100 billion revenue (it doesn’t give individual earnings for start-ups) from its partners that include start-ups, independent software vendors (ISVs), re-sellers and system integrators.

IBM understands that in solving some of the grand challenges of energy, health care, retail, transportation, water, cities, and communications, it’ll have to transform those industries. “And we can’t do that all by ourselves,” says Riegel.

A look at the India Smart Camp winner elaborates what IBM’s plan is. ConnectM Technology Solutions is an energy management company that collects data wirelessly and applies analytics to provide ‘intelligent’ solutions for utilities. “While we are into data collection, IBM is into data management. Our coming together is like left hand meeting right hand,” says its Chief Executive Murali Ramalingam. And if IBM wants, it can take ConnectM’s installed base to its own customers.

Why a Structured Programme Now?
In all these years, the number of start-ups IBM has swooped on has increased from about 20 to 1,500. However, it was only last year that the company launched its Global Entrepreneur Initiative (GEI), a structured programme to attract zero- to five-year-old companies that, if found to be a good fit in IBM’s offerings, would find the Armonk-giant acting as their perfect launch platform, filling gaps in technology, if any, and connecting with the end user.

Unlike earlier partnerships, where start-ups largely leapt out of the portfolios of 120-odd venture capitalists that IBM works with globally, GEI looks at their ideas, rather than their revenue.

GEI was launched in five countries, including India, and now IBM is going back to those regions conducting Smart Camps. The initiative will be launched in four more countries this year, starting with Mexico next month.

One of the objectives of the initiative is to make IBM a more accessible brand among young companies. “In the previous programme, we saw the pain of small companies and how much they endured to get to the right person within IBM,” says Mauricio Sucasas, director, ISV and developer relations, growth market unit, and a 23-year IBM veteran. He believes GEI is about leveraging the diversity that IBM harbours. “Through this programme we want to get on early in the process of filling a gap in the eco-system.”

Filling the gap would amount to ensuring start-ups get technology and brand building support, VC and customer attention.

IBM doesn’t want to play catch-up as it had to do in 1999. Back then, recalls Riegel, IBM was not a ‘cool’ company like high fliers AOL and Sun Microsystems. “We were a little late in the dotcom revolution,” he notes. His team was formed to fix that; to figure out what the dotcoms, the flip flops-and-jeans clad generation of entrepreneurs needed that the ‘blue suit-clad’ IBMers had missed out. And thus began IBM’s journey of identifying innovation hot-spots across the world.

“As we sold to those dotcoms, we made a note of the zip codes. It became abundant which cities in the world were important for innovation,” he says. IBM focused on those locations, set up 40 innovation labs, and is now ensuring that it has the right skills, programmes and institutions in those cities to tap these innovators.

Each hotspot, such as Bangalore, Tel Aviv or Dublin, focuses on niche areas. If a Bangalore lab digs its heels into telematics, analytics and infrastructure management, Tel Aviv dives into storage, speech recognition and telecommunication. If an Indian start-up (or even an ISV) partner needs the Tel Aviv lab’s expertise or sales force to help, IBM ensures it is available.

Over time, says Riegel, there’s been a dramatic change in the appetite among start-ups for scaling up. Back then, there were lots of ideas that were not well refined. Today, because of scarce funding, start-ups spend much more time reiterating their business model as a small team before they decide to scale up. “Once they scale, they become interested in IBM because we make enterprise class hardware and software,” says Riegel. At this stage, one ought to have operations that do not fail; outages are not acceptable now, as they were in 2000. “Now people have much appreciation for enterprise class technology, even for startups.”

In the past decade, IBM itself has also morphed from a predominantly hardware and services company to a software, solutions and consulting services behemoth, becoming more relevant to start-ups for its deep industry insight — thanks to the acquisition of consultancy firm PricewaterhouseCoopers — and intellectual property. So, for the first time, through GEI, IBM is giving access to its enormous wealth of research. Take, for example, ShopAlive, one of the first Swiss start-ups to get into the GEI programme. ShopAlive, which makes the world’s first turnkey service platforms for electronic and mobile commerce, allowing merchants to build store environments using 3D panoramic photography, got help from the Zurich innovation lab. Then, developers visited IBM’s Almaden, California lab, which focusses on retail, to get their solution evaluated. Now, as it prepares to launch its product in Mexico, and hopefully in India too, it is testing with IBM to host its solution in the cloud.

Currently, ShopAlive is funded by ‘friends, family and fools’, but its 44-year-old maverick founder Jeans-Charles Tramasure, who has dabbled in restaurants, the Internet, and television businesses before, is actively seeking venture capitalist (VC) investment.

Some Smart Camp winners and runners up — Boston-based Sproxil that is now expanding into India and San Francisco-based SteertLine — have just closed VC investments, but ShopAlive is still scouting. At some point, being a certified IBM solution will certainly help, says Tramasure. “IBM knows how to roll out technology. Whether our business relation will work or not, we’ll know in a few months.”

How Blue Suit Meets Denim
We began our partnership with IBM even before they invested in us,” recalls Tarquinio Teles, CEO of Hoplon Infotainment, developer of Taikodom, the biggest online game ever developed in Brazil. In 2003, Hoplon was looking for a groundbreaking solution for its ‘massively multiplayer online’ (MMO) servers for games. It learnt IBM DeveloperWorks was holding a seminar in São Paulo. Teles and his colleagues registered and, at the first coffee break, introduced themselves to the three IBMers as a start-up looking for investments to develop MMOs.

“We were astonished by how welcome those guys made us feel. They began talking about the technologies they were going to present that could be adapted to our needs,” remembers Teles.

Their paths crossed again at the Congonhas airport. After casually drafting hardware architecture and gulping a few beers, they went their ways.

Informal meetings continued in 2004, and in early 2005 IBM called Hoplon to say it was willing to loan them some space in a System z mainframe running Linux in Brazil. While Teles was ecstatic, his team scoffed that a mainframe would not be powerful enough to run Taikodom. Teles conveyed this to IBM, which first convinced them that it was the right machine to handle their kind of load, and then posed a challenge: If it was proven wrong, the Big Blue would give any machine Hoplon wanted. In the end, IBM was proven right. Hoplon today runs its Taikodom from a z10 system.

Not all start-ups have such colourful stories to tell, but Hoplon’s experience epitomises how seriously IBM takes start-ups, even those that don’t have multi-million dollar revenue on their balance sheet. And by launching GEI, it is ensuring that encounters like the ones Teles talks of are not left to chance.

More than Smart Camps, it is GEI that is really conducive for start-ups, says Sid Prasanna, managing director, Akros Techlabs, a Smart Camp participant based in Austin, Texas. If start-ups find the right fit for their applications in the IBM portfolio, then “you can’t put a value to the benefit you get from this association”. Three-year-old Akros knows this well: Its mobile security solution — a software-based two-factor authentication system that is different from the hardware solutions in the market — found entry into IBM’s haloed global solutions registry. “I am now directly dipping into IBM’s sales team resources and by virtue of being a GEI partner I’ve got lot of publicity,” says Prasanna. The IBM partnership in no way prevents Prasanna (or others like him) from selling to non-IBM customers or porting to other technology platforms such as Java. To broaden such collaborations, IBM has tied up with universities and incubators around the world. India has the largest number of student start-ups in the world, says Riegel, citing it as one of the reasons why IBM started its 2011 Smart Camp in Bangalore.

Infographic: Sameer Pawar

Start-Ups: The Secret Ingredient
A well-oiled innovation machine is what all big corporations want, especially technology companies, with their frightfully high obsolescence rate. Dipping into start-up resources has proven to be the road most-travelled. Companies have covered different distances, but none has come as far as IBM.

Intel has had a very successful investment programme but only after it dropped the pretence of strategic alliance, says Ashish Gupta, managing director of Helion Venture Partners. “Companies can’t do both; Intel is now only a financial investor.” Helion is one of the VC firms to have interacted with IBM for years but only now has a portfolio company — Zmanda, an open source and cloud back-up start-up — in the IBM programme.

Those like Microsoft have given away free software to start-ups. And with a strong legacy backing the software, start-ups eventually end up getting their products into Microsoft. “But Microsoft’s venture programme was a disaster,” says Gupta.

Cisco, an old hand at working with captive start-ups, works with ‘spin out, roll-up’ strategy. It gives a break to start-ups, lets them build boxes and then brings their product into its fold of channel partners.

Of late, India’s largest software exporter Tata Consultancy Servcies (TCS) has also entered the game. Being a system integrator, it takes start-up solutions into its suite of offerings. Even though IBM and TCS play by the same rule, the end game is different. Unlike IBM, TCS does not own the assets. If IBM finds some company’s offering is used again and again, it will own it, says Gupta.

According to IBM, one of the reasons its programme has done well is because it spends a lot of time discussing what its unique value is, and what isn’t. Getting into venture funding is a skill that IBM doesn’t have, says Riegel. “What we have is sales and product development. And companies often struggle with that balance.”

Companies should know why they are in a start-up partnership. Too often, especially back in 2000, companies did this for financial reward. “If you look at why Sun Microsystems floundered,” says Riegel, “you’d see that many reports pointed to the fact that it was accepting warrants and stock options from start-ups in exchange for hardware and software, hoping that would appreciate. IBM was never in it for improving its financial returns. We are in it to foster innovation and solution building for customers.”

If you know what you are in it for, you can measure it, right?

Certainly, says Riegel. But you need to have both short-term and long-term measurement. “I think companies too often measure it for one or the other.” If you measure only short term, you are not going to get returns; if you measure only long term, you may not have patience in a public company. Pulling out a graph from his files, Riegel explains the “typical life-cycle of a hyper-growth software company”. At each stage, his group measures the number of start-up applications, their engagement with resource managers, referrals to innovation centres and building/porting to IBM technologies. What matters, gets measured.

But what about failures? Many innovative start-ups, like star child artists, fade with maturity and aren’t able to scale up. “We learn from their failures. Sometimes we even acquire them,” says Riegel. One such example is Corio, a hosting services company that IBM acquired in 2005. It later set the foundation of IBM’s cloud strategy.

Arguably, it’s an evolving process, not much different from that of adopting children. If you give them too much love, you run the risk of spoiling them; if you adopt them too young, then you might end up wondering whether you adopted the right child; if you delay it, then it might prove to be too expensive.

“The devil lies in how you keep watch on these young companies,” says Helion’s Gupta.