One of the most compelling initiatives to come out of IBM in 2007, the Vertical Industry Program (VIP), was designed to tackle one of the most impenetrable markets of all — the "S" part of the SMB market. IBM aimed the program at business niches, or "micro-markets," that need high-quality IT solutions but typically don't have the resources available to implement and manage them — a perfect breeding ground for the black box previously known as the System i.

To launch the program, IBM first identified the market segments that could be served by local, independent solution providers and paired them with whatever IBM and reseller/integrator/consultant talent they might need to provide go-to-market ready solutions for small customers.

Market segment examples include small medical offices, local labor unions, wholesalers/distributors of specialty products like janitorial supplies, retail banks, and credit unions.

What's particularly interesting about these micro-markets is the idea that the businesses don't align themselves with any specific technology platform. Rather, their concerns focus on their industry and industry-specific solutions. Small businesses are less likely to be biased for or against any particular platform — if they are even truly aware of platform differences in the first place. It's all about the application, which speaks to the historical success of the AS/400.

With more than $500 million in sales, the VIP initiative has exceeded all IBM's expectations, though Big Blue has declined to identify how much of that half-billion in revenue was focused on System i hardware, how much went to System p hardware, and how much may or may not have gone to the software and services of IBM's partners.

Indeed, for all of its success, IBM has been shy about reporting specifics, including the niche channels it has identified and is developing. IBM doesn't break out revenue in any specific way, so there's no surprise there. Overall, though, requests for more detailed information from System iNEWS have gone unanswered several times during the last 12 months.

Something Good Is Happening

Despite IBM's surprising quiet — some of which could be attributed to the chaos of IBM's organizational and product line shift to Power Systems — there is some evidence that the program has been a success (see "VIP i Examples" on page 26). And even where evidence is slim, the organizing principal behind the entire program seems close to perfect. Compared with many IT-focused companies, IBM remains far more open and communicative, so it's hard to fault the company for not wanting to blow its cover as it attempts to spread the VIP love around the globe.

So far, the program, which has expanded to include IBM Power Systems, BladeCenter, System Storage, and System x servers, has more than 750 specialized business partners working to deliver niche-based solutions to 160-plus sub-industries in more than 40 countries around the world.

And that $500 million? Even if only $150 million could be attributed to System i . . . that's still something around 10 percent of IBM System i-focused revenue — measured, at least, when the System i wasn't yet IBM i. Mark Shearer, IBM's vice president of marketing and offerings for the IBM Business Systems Group, did mention at this year's COMMON conference in Nashville that the "VIP drove well over $100,000,000 in System i revenue last year, and it's on a very rapid growth path." Whatever the actual numbers are, in a market that has seen a consistent contraction in revenue, new revenue growth in the tantalizing SMB market is pretty darn amazing.

International Business Systems (IBS) is one of the original VIP members that joined the program in late 2006. IBS now participates in four micro-markets: automotive parts distributors, paper and packaging distributors, pharmaceutical distributors, and publishing.

A particularly interesting side effect of the VIP is the way it encourages disparate IBM Business Partners to work together to close business.

"We have had tremendous success working with not only IBM, but also other IBM Business Partners in the VIP program. We partner with over 80 different IBM Business Partners in the Americas to gain traction in markets that we might otherwise have not been able to penetrate," explains Dan Wells, IBS vice president of marketing in the Americas.

In terms of building ecosystems, this move by IBM is particularly shrewd. Once the core relationships are built, IBM can shift focus to something new.

"The number of leads from IBM, IBM Business Partners, and joint, cooperative marketing has increased significantly since joining the program," Wells says, noting that IBM also has assisted IBS through similar programs. And in June, IBS shared a booth with IBM at the Industrial Supply Conference and Trade Fair.

The Wrench in the i Gears

In the midst of all this good news, there are some ways IBM i could end up missing out. The VIP — and its business partner base — is now the backbone of IBM's sales strategy for selling IBM technology into small and medium businesses. And IBM's reason for using business partners, rather than IBM "Blue Suits," out in the field? Obviously, it's a cost issue, but IBM spins it as a need for local, product, and industry expertise that business partners can provide. The lack of IBM salespeople — and IBM marketing efforts — has led to some criticism of the VIP in comparison to IBM's successful IBM Installed User Programs (IUPs) and Field Developed Programs (FDPs) in the 1970s and 1980s. Though it's hard to determine whether predecessor programs could have delivered better than today's VIP, it is clear that the VIP concept isn't entirely new.

In any event, there is the argument that if IBM can create a bunch of little consortiums of business partners interested in selling IBM solutions, the IBM technology ecosystem will grow.

Rumors have also been floating around on the street that IBM is not supporting some micro-markets nearly as well as it might seem. This is particularly tough to get to the bottom of because IBM Business Partners usually are not willing to risk angering IBM and making matters worse. And on IBM's side of the fence, the company's lack of response could be a reflection of poor business opportunity in a given micro-market, or issues with the business partner not holding up its end of the bargain or having unrealistic expectations.

It's hard to say.

Specifically for IBM i, one other issue may keep it away from VIP success: IBM's desire to propagate its VIP business strategy through selling any sort of IBM technology. By taking an IBM-wide approach, IBM can create local VIP ecosystems with solutions that run on AIX, Linux, and Windows on Power Systems or BladeCenter servers. This broader activity could overwhelm micro-markets that may have been suitable for IBM i . . . or not affect them at all. Additionally, VIP participants may feel pressured to support multiple operating systems and be familiar with more than IBM i running on a Power System.

Again, hard to say.

Since it's unlikely that IBM will actively try to foster new IBM i application development — though early VIP announcements from IBM indicated that it was helping some ISVs modernize their applications — a best case scenario may be a situation where IBM simply identifies a micro-market, finds a partner regardless of its OS preference, and then puts the VIP machine in motion. In this case, IBM i may or may not be involved at all, despite the notion that it would be most suitable for the majority of SMB micro-market businesses.

Why VIP Matters Now

Even though VIP solution sales typically result in the sale of applications-in-a-box that don't require much in the way of customization, the small companies buying the SMB-targeted solutions often grow into larger companies. Once they become larger, they'll most likely need to add IT staff with IBM i expertise for systems management and integration, and could perhaps create new opportunities for custom IBM i application development — if not a market for new software altogether.

If IBM doesn't create more new IBM i customers, there won't be a next generation of IBM i developers, so the success of the VIP is critical to the current IBM i ecosystem. In addition, for a small IBM Business Partner focused on the SMB market, the VIP can bring co-marketing, sales support, and partnerships with other solution providers and consultants in the industry. The net result would be a connected and thriving ecosystem. And if the ecosystem grows large enough to be recognized in local geographies, IBM i will have a new chance to flourish.

Chris Maxcer is the news editor for System iNEWS. "If there's one program that has the potential to seriously help IBM break into the small side of the SMB market, it's VIP," Chris says. "I think it's only a matter of time before IBM CFO Mark Loughridge talks up VIP in IBM's quarterly financial reports."

VIP i Examples

Partner: SEMD Business Solutions

Market: Automotive, farm machinery, chemical distribution markets in Australia

VIP Sales: Harley City, a Harley Davidson dealership in Melbourne, Australia, tripled its growth and kept administration costs the same.

Partner: Infor

Market: Janitorial, sanitation, restaurant, and hospital supply

VIP Sales:Dixie Paper, a wholesale paper, chemical, and sanitary maintenance distributor serving northern Louisiana and eastern Texas, selected Infor ERP A+ to manage several of its business processes.

Partner: IBS

Market: Book publishing in the western U.S.

VIP Sales: IBM picked up new client Oregon Catholic Press, a not-for-profit publisher of liturgical music and worship resources based in Portland, Oregon. The publishing company uses IBS Bookmaster, which is designed for the book distribution and publishing industry.

Partner: Sanmarco Informatica Spa

Market: ERP software provider in Italy

VIP Sales: Sanmarco doubled System i business in 2007 on sales to manufacturing, wine, food, building, fashion, furnishing, and wood flooring customers.

Partner:Timpanogos Technologies

Market: K-12 education ISV

VIP Sales: Timpanogos supports more than 200 school districts in 28 states; Olathe Northwest High School in Olathe, Kansas, recently implemented wireless technology from Timpanagos to provide every student a handheld computer, integrated with the school district's IBM System i.

Partner: Xperia Solutions

Market: Pennsylvania-based enterprise apparel solutions provider

VIP Sales:Modern Shoe Company, an importer and wholesaler of women's fashion footwear, uses a System i with Xperia solutions to manage a rapidly growing $50 million-plus business with just nine employees.