Palmisano: On-Demand is Here, It’s Ready

IBM’s Chief Executive Sam Palmisano continued his mantra about on-demand computing as enterprise technology’s next wave during his annual presentation to analysts and customers Wednesday.

But it was his outlook for the sluggish IT industry in particular that helped buoy the tech faithful’s spirits at the gathering in New York.

“I think you’ll agree we are operating in one of the most difficult environments,” Palmisano said, calling the technology recession one of the worst he’s seen in his 30 years in the business. “Even though we’re facing difficult short-term economic circumstances, I’m optimistic about the long term. I see signs that we’ve hit bottom, and things have flattened out.”

The industry is still struggling through excess capacity and over investment in IT leftover from the dot-com heyday. But enterprise customers’ overriding interest in wringing more returns from those IT investments is also fueling a fundamental shift in the industry as well, he said.

After networked, client-server computing systems comes on-demand computing — buying it like a utility — and based on open standards that underpin integrated systems imbued with self-healing (autonomic) capabilities.

“On demand (computing) is fundamentally about driving your business processes beyond vertical silos, to flipping them on their side and looking horizontally at all the opportunities to link” up applications, he said. “It’s about separating the application layer from the operating system layer.”

Utility-like computing services, like those deployed in grid computing systems in specialized trials, are here and ready for adoption, Palmisano said, at once heralding IBM’s embrace of open source and displaying canny sales skills that helped fuel his rise to the chief executive spot.

The annual meeting with customers, Wall Street analysts and the press is an IBM tradition. This year’s event, held at New York’s Museum of Natural History, provided Palmisano a chance to display his leadership tone after formally taking over the top spot in March from his predecessor, Louis V. Gerstner. As of Tuesday, that transition was complete when Palmisano was also named chairman of the board, which takes effect when Gerstner exits the post in January of next year. The title completes the 51-year-old Palmisano’s transition from president and chief operating officer to chief executive.

Palmisano, who worked his way up through the IBM ranks, inherits a company slogging its way through a technology recession now two years running. Sales across all its major divisions are flat or have fallen. But with IBM’s e-business integration middleware products holding up, such as WebSphere lines whose sales jumped by 27 percent during the third quarter, Palmisano had some wind in his sails as he outlined the next step beyond business integration.

Just as computing technology moved from its centralized era to the dawn of client-server computing, now networked applications are ushering in the era of computing as a utility.

“We’re at the next phase which is about not just tech integration but business process integration,” Palmisano said. He also urged the industry to think about adopting common language standards so that enterprise systems can effectively manage a transaction when it “explodes” across a company’s infrastructure, and back through the supply chain.

That’s why IBM is committed to open standards protocols including XML , SOAP , and WSDL , he continued.

Of course, the open standards commitment also explains what Palmisano called IBM’s $10 billion bet to champion the Linux open source computing platform as a key of its on-demand strategy.

A big bet? Yes, he said, and bold, too. “Risky? I don’t think so. The technology is ready. We understand it. We think by tying IBM’s priorities to your priorities, we can’t fail at this,” he said to the customers, new and potential, in the audience.

“I understand that not everyone shares this point of view” on the debate between open standards and proprietary operating systems. “But we believe it’s good for you and the industry. It’s good for both of us.”

After all, the widespread deployment of proprietary systems across the business world has given rise to acres of underutilized computing capacity among major enterprise customers whose systems don’t inter-relate, Palmisano continued.

“If you were a hotel you couldn’t operate with a 95 percent vacancy rate. But this is what we have in the technology industry. It’s just a statement of evolutions and proprietary approaches that, when dispersed, led to underutilized computing capacity.”

He said the situation is one of the reasons behind IBM’s embrace of Linux, and its investment in a grid computing system such as with London’s Oxford University where open platforms are harnessing super-computing capacity for life sciences research.

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