From the Editor - August 1995
David M. Kalman

IBM Takes Notes

By now you've heard about IBM's $3.55 billion not-so-friendly takeover of Lotus Development Corp., the computer industry's biggest merger ever (see Client/Server Connection, page 104). The previous record occurred only a month ago, when Computer Associates Inc. announced it would acquire Legent Corp. for about $2 billion. At this rate, we may see another record next month (perhaps when Apple is acquired by the likes of AT&T or Motorola).

While the response to the IBM/Lotus deal has been generally positive, I find it a bit disturbing. From a financial perspective, the pact makes some sense. In 1994, Lotus generated $970.72 million in revenue, so a $3.5 billion sale price does not seem out of line. Even if you consider that Lotus lost $20.88 million in 1994, the sale price does not seem unreasonable at three-and-a-half times its annual revenue. Without restructuring charges and non-recurring costs for acquisitions, Lotus might have posted nearly $50 million in profit for 1994.

So, maybe I'm just uncomfortable with the scale of this deal. $3.55 billion could:

• fund the startup of 350 small software development companies;
• purchase nearly two million fully-equipped Pentium computers for school children;
• send 50,000 young people to four-year (though not necessarily private) colleges;
• replace the government's public television funding for 15 years;
• distribute 70 million free copies of OS/2 Warp to attract new third-party software developers.

Then again, perhaps I'm more concerned that IBM has taken a wrong turn again, this time on the road to client/server groupware.

Clearly, IBM views Lotus Notes as the jewel in this acquisition's crown, yet Notes may not provide the leverage that IBM needs to exert leadership in the groupware category. Lotus Notes is a visionary product. It was innovative, and it prospered by providing a complete, but open solution in a world where other solutions did not exist. In the future, however, all development tools and DBMSs will have to support a "groupware" architecture, and the single-source solutions will wane. The demand for database replication is just one example of a Notes-like feature working its way into the mainstream. The danger for IBM is that just as Notes matures, this new groupware model will emerge -- one of heterogeneous components -- and IBM may fall behind once again. Notes could become IBM's next legacy application.

While Lotus Notes was an early enabler, the real growth won't be in integrating "office" productivity applications, but in building complex client/server applications that support collaboration. Lotus Notes was one of the first, and it will continue to excel in providing an infrastructure for collaboration. Nevertheless, the potential for greater growth exists in heterogeneous tools that support industry-accepted APIs and messaging systems. In the future, you won't buy a groupware environment, you'll build one.

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