06/26/95 GROUP THERAPY: Why IBM paid all that loot for Lotus

GROUP THERAPY
Why IBM paid all that loot for Lotus
How much is it worth to own the software that really lets groups of workers take advantage of computer networks--to collaborate as easily across the globe as down the hall? Try $3.5 billion. That's what IBM is shelling out for Lotus Development Corp., the roughly $1 billion software maker best known for its popular 1-2-3 spreadsheet. The prize is Lotus Notes, the defining product in an emerging category of software known as ``groupware,'' so called because it's designed for sharing information among members of a group.
What's the big deal? IBM Chairman Louis V. Gerstner Jr., a devout Notes user himself, sees an opportunity to turn the competitive focus away from operating systems--where IBM has had little luck slugging it out against Microsoft Corp.--to building the computer industry's next generation of networked information systems.
SEAMLESS PACKAGE. Groupware is actually a catch-all term encompassing products ranging from fancy E-mail systems to scheduling programs to electronic bulletin-board software. The most sophisticated groupware packages have advanced features for automating the flow of work, routing documents, or allowing far-flung people to collaborate on a single document at the same time.
So what makes Lotus Notes stand out in the world of groupware? While many products tackle pieces of the puzzle--scheduling or shared databases, say--Notes is a comprehensive, seamless package. It can also be customized and used as a ``platform'' upon which to build additional applications--for managing a remote sales force, for instance. That has attracted many large organizations--such as Price Waterhouse, General Motors, and Compaq Computer--that need to connect widely dispersed workers but want a system tailored to their needs.
Take Andersen Consulting. The $3.45 billion consulting firm built a system based on Notes called Knowledge Exchange, which serves some 20,000 consultants around the world. When Andersen had only a few people working in a particular area, it was easy to know which one of them to call for advice, explains Charles M. Paulk, Andersen's chief information officer. Today, Andersen has over 30,000 employees worldwide, and the Notes system, says Paulk, ``is how we keep up with ideas and developments around the world.''
QUICK SOLUTIONS. Knowledge Exchange, which Andersen launched three years ago, now consists of over 2,000 databases that consultants can tap into. Each specialized group has a database on the system and a ``page'' summarizing its contents and any relevant news. As employees add to their database, they build a library to store the group's collective experience and knowledge. So when a question relating to a project arises, consultants can check the Notes database to find an answer quickly. Employees can also use Notes for electronic consultations with each other. The result: Problems that once took two weeks and thousands of dollars to figure out are solved overnight, says Paulk.
No wonder sales of groupware programs are taking off. Workgroup Technologies Inc., a Hampton (N.H.) researcher, predicts that sales of groupware packages of all types will more than double, to $4.2 billion by 1999, from just over $2 billion in 1994. Why? Because ``every networked PC,'' is a potential customer, says Raymond E. Ozzie, the programmer who created Notes and the president of Lotus' unit, Iris Associates. So, the groupware gold rush is on. Startups like Collabra Software and Mesa Group, as well as giants Novell, Oracle, and Microsoft are jumping in. Microsoft's Exchange groupware package is due out by yearend.
Notes, on the market since 1990, has the edge. A whole industry of developers, consultants, and systems integrators has evolved to help customize and install the program for some 1.5 million users. And IBM is prepared to back the product with its global sales force and legions of consultants.
In theory, that could propel Notes into a central role in thousands of corporate networks--giving it greater strategic importance than any PC operating system. In reality, for Notes to compete with the Windows juggernaut, it must become a standard. Notes Version 4.0, due later this year, will help. The upgrade will give Notes a sleeker user interface and make it easier for network administrators to manage. But more important, it will be better suited for sharing information beyond one company, whether over the Internet or over private networks. The new version will be able to serve thousands of users and make it easier for one company to grant another access to its Notes server.
The big boost, however, could come from Network Notes, a version being adapted to work across AT&T's long-distance network. Call it groupware on steroids. Already, companies such as Compaq and Egghead Software are testing Network Notes to share information with customers, partners, and field offices. IBM plans a similar system, pairing Notes with the IBM Global Network, which serves 25,000 corporations.
The lure of Notes on these private networks, says Lotus, is that it will provide the far-flung access of the Internet without the chaos or risk. Like the Internet itself, Notes is now mainly a means for disseminating information--say, product and pricing data to customers. But in its beefed-up, long-distance version, it could be used for electronic commerce--for buying and selling everything from industrial goods to the latest fashions.
The biggest competition from Notes may not be other groupware programs, but the Internet. The Net's World Wide Web is already being used as a sort of poor man's Notes. ``The World Wide Web will do more than Notes,'' says Robert D. Kutnick, chief technology officer at Quarterdeck Office Systems Inc., which is developing Web-server software. And it's cheap. For less than $500, he says, you can set up a Web server for an entire corporate network--much less than $275 per workstation it would cost with Notes.
Still, no Internet setup has yet matched all the useful features of Notes. One of the most difficult to duplicate is replication, which ensures that even if there are thousands of users, they all have the latest version of a document or database. And like everybody else in the high-tech world, Lotus has figured that the only way to beat the Internet is to join it. Notes 4.0 will tap into the Net and convert Notes databases into the Web format known as HTML (hypertext markup language). The payoff of combining groupware and the Internet--two of the hottest technologies around--could even be worth a $3.5 billion bet.

Groping For Groupware

IBM After years of trying to create its own groupware programs, Big Blue is purchasing the king of groupware: Lotus Development. Notes, Lotus' crown jewel, is now used by 1.5 million customers,making it the clear leader.
MICROSOFT The PC software powerhouse is still struggling with the development of its own groupware contender, Exchange.
NOVELL Leveraging its strength in networking, Novell is building programs, such as Groupwise, to work over networks.

By Amy Cortese in New York, with bureau reports