BUSINESSWEEK ONLINE : SEPTEMBER 27, 1999 ISSUE
COVER STORY -- E.BIZ -- THE E.BIZ 25

Louis V. Gerstner Jr.


LOUIS V. GERSTNER JR.

IBM

Position: Chairman and CEO

Contribution: An early Net believer, he mobilized the computer giant to make Internet technology and services a top priority.

Ambition:Have IBM stand for Internet Business Machines.

Years from now, if there is a version of the popular game Trivial Pursuit on the topic of the Internet, one question that would be certain to stump even the most diehard game enthusiasts is: What chief executive officer, criticized for his lack of strategic vision, actually demonstrated more savvy than many of the digerati by jumping on the Internet early and steering his troubled company to a stunning recovery? The answer: IBM Chief Executive Louis V. Gerstner Jr.

Dial back to 1995. The computer industry is in the midst of browser wars, talk of 500 television channels, and the notion that content would be king on the Internet. But there is Gerstner, the former McKinsey & Co. consultant who had pushed credit cards and cigarettes for most of his career, delivering a contrarian speech at the annual COMDEX computer industry trade show. His message: The Internet isn't just about browsing and selling to consumers. The killer application, Gerstner argues, will be business-to-business e-commerce. The Internet isn't about personal computers, either, he says. It's about big computer servers capable of handling massive loads. Gerstner receives just a smattering of polite applause. ''At that time, it was a pretty lonely position we took,'' he told Wall Street analysts in May.

SWEET SPOT. Today, that position is packed as tightly as a Tokyo subway car at rush hour. And Gerstner's early moves have helped Big Blue stand apart from the crowd. About 25%, or $20 billion, of the company's revenue is driven by e-business. That includes products such as mainframes that serve as the heart of Charles Schwab's (SCH) online trading business, or e-commerce software that conducts transactions for customers such as Macy's, Victoria's Secret, Lands' End (LE), and CD Warehouse (CDWI). ''You're stupid if you're not looking at IBM (IBM),'' says Bill Bass, vice-president for e-commerce at Lands' End.

So where are the Internet opportunities for IBM now? They aren't among the dot.com startups--although IBM is trying to get its share of business there. Instead, Gerstner sees big money in his company's traditional customer base--the thousands of companies that have yet to tap the Internet and transform their businesses. ''That's the real revolution,'' he declares. He's zeroing in on operations such as supply-chain management, customer service, logistics, procurement, and training. As chief of the world's top tech-services company, Gerstner crows: ''We're right in the middle of the sweet spot.''

Lou Gerstner the Internet visionary? Believe it. He was ahead of many in the computer industry--including software mogul William H. Gates III of Microsoft Corp. One of Gerstner's key moves was to shift 25% of the company's research and development budget into projects that fall under the rubric of so-called network centric computing. He also declared that every IBM product--from tiny laptop PCs to mighty mainframes--must have some sort of Web hook. The best part: Other senior executives at the company, worried that they would appear technologically ignorant next to their chairman, started getting wired. And as Gerstner showed, that was no trivial pursuit.

By Ira Sager

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[empire builders]
Jeffrey P. Bezos
AMAZON.COM INC.

Stephen M. Case
AMERICA ONLINE INC.

Timothy A. Koogle
YAHOO! INC.

[the innovators]
Louis H. Borders
WEBVAN GROUP INC.

Jay S. Walker
PRICELINE.COM

Margaret C. Whitman
EBAY INC.

Glen Meakem
FREE MARKETS ONLINE INC.

James H. Clark
MYCFO INC.

Christos M. Cotsakos
E*TRADE GROUP INC.

[bankrollers]
Masayoshi Son
SOFTBANK CORP., JAPAN

Robert C. Kagle
BENCHMARK CAPITAL

Lawton W. Fitt
GOLDMAN SACHS & CO.

L. John Doerr
KLEINER PERKINS CAUFIELD & BYERS  

Bernard Arnault
LVMH MOET HENNESSY
LOUIS VUITTON  

[the visionaries]
Mary G. Meeker
MORGAN STANLEY DEAN WITTER

John Hagel III
MCKINSEY & CO.

William Joy
SUN MICROSYSTEMS

[the architects]
Louis V. Gerstner Jr.
IBM CORP.

Pehong Chen
BROADVISION INC.

David C. Peterschmidt
INKTOMI INC.

Kevin J. O'Connor
DOUBLECLICK

Ellen M. Hancock
EXODUS COMMUNICATIONS

[the pace setters]
David S. Pottruck
CHARLES SCHWAB CORP.

John T. Chambers
CISCO SYSTEMS

Michael S. Dell
DELL COMPUTER



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