There was an atmosphere of euphoria at Tivoli Systems in early February following IBM’s agreed $743 million bid for the Austin- based systems management software company. It was a cash offer, so newly-wealthy Tivoli staff were partying – some were even thinking of ‘cashing-out’. Feeling threatened by how the new partnership would shake up the systems management market and hoping to snap up talent, Tivoli’s archrival Computer Associates placed ads in the Austin Statesman, putting a negative spin on the deal and encouraging software teams to ‘come talk to CA’. Hearing that CA was interviewing its staff in Austin’s Stouffer hotel, Frank Moss, Tivoli’s chief executive officer, hired the room next door and threw a party that eventually spilled over into the room next door. CA’s decision to pounce so quickly on Tivoli’s software experts says a lot about how seriously it views the potential of the IBM/Tivoli combination. IBM and CA compete head-to-head in the mainframe systems management market with utilities for tasks such as system back-up, sorting and monitoring the data center. It is a highly-profitable market, but one that is mature and stable, with each of the two companies ‘owning’ a large proportion of mainframe accounts. The newer client/server computer market, reckoned to be worth $2.5 billion, is still wide open. Organizations need software to manage their distributed client/server networks, a tricky challenge that few companies have risen to. Through its Unicenter package, CA has grabbed the largest slice of that growing pie, with revenues of several hundred million dollars. Tivoli is also growing fast, with revenues that rose 84% to $50 million in 1995. IBM’s own attempts to break into this market have been centered on its five year effort, codenamed, ‘Karat’. This did come to market as SystemView for AIX in mid-1995, but its scope and level of sophistication was only a fraction of what IBM had planned. For the most part, the software was focused on managing AIX Unix platforms, while many sites need systems management software that can oversee systems from multiple vendors. In fact, at the time SystemView for AIX was announced in May last year, IBM executives were clearly unhappy with its contents. They were aware that Tivoli had built a powerful systems management platform, the Tivoli Management Environment, that allows systems administrator to centrally manage different types of distributed computers and manage tasks such as the signing on of new users, distributing new software, backing-up and so on. The feeling was that Karat was a poor second to Tivoli. IBM software executive Don Haderle had the job of telling Lou Gerstner that the company had failed to make the technical breakthrough that would allow users to monitor and control dispersed systems from a mix of vendors. It was my recommendation that we should have bought Tivoli [in 1993], Haderle told the magazine IBM System User in May last year. The fact that it now has, puts IBM in a very good position. IBM has a product that is technically as strong as CA-Unicenter, if not stronger. More importantly, its sales team can take the Tivoli product line into its captive mainframe accounts, using it to gain the upper hand in the systems management of Unix servers and PC clients as CA has been trying to do with Unicenter. CA, however, says the deal means Tivoli has lost its vendor- independence. In many ways, the IBM-Tivoli deal is a reverse takeover. Moss has been put in charge of the newly-formed IBM systems management software division, made up of 320 of his staff from Tivoli and another 1,000 from IBM. Its revenues are estimated at $1 billion. While Tivoli is already profitable and growing fast, Moss will now be able to pour some of the huge profits that flow from the IBM mainframe systems management business into accelerating Tivoli’s market penetration and in extending its technical edge. One problem Tivoli does have is that it lacks products that manage relational databases, a technology that underpins most modern client/server applications. Informix and
Sybase have licensed Tivoli’s software and are working to implement TME as a platform for their systems management tools. Oracle, on the other hand, has its own management platform which exclusively looks after Oracle databases. To build up its hand in this area, Tivoli has recently purchased a minority equity stake in a London-based technology start up, DBMX Ltd, which has implemented a version of Tivoli TME for Oracle. At the same, Oracle has also bought a stake in DBMX, hedging its bets in case TME becomes the industry standard for database systems management. Oracle and IBM/Tivoli are now ‘reference selling’ the DBMX software through their salesforces worldwide. That kind of fast deal-making was not a feature of the old IBM mainframe systems management software club. But given that the business is now run by a more entrepreneurial team, which has the technology and – judging from Moss’ hotel room prank – the guerrilla marketing tactics, the combined company could have the clout to make Computer Associates and others flinch.
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