Edited by Thane Peterson

IBM Chairman Louis V. Gerstner raised the stakes today in the escalating fight over who will dominate the crucial market for groupware, saying "this is one battle we plan to win, and win decisively." Appearing at Lotusphere, the annual conference of IBM subsidiary Lotus Development Corp. outside Disney World in Florida, Gerstner announced the availability of Lotus' Domino groupware technology on two key IBM computer platforms later this week and said IBM would increase Lotus' marketing budget beyond the 40% boost it received in 1996.

Gerstner also mocked Microsoft Corp. and Netscape Communications Corp., quoting from an analyst's report that characterized their high-profile campaigns to build a presence in groupware as "a shouting match between two naked emperors." Gerstner's barb was the latest attempt by Lotus and IBM to deflect aggressive moves by Microsoft and Netscape into Lotus' stronghold in groupware, the software for helping workers collaborate that many believe will shape corporate computer networks in coming years.

Referring to Lotus' Domino groupware technology as "the crown jewel in our Internet strategy," Gerstner said IBM will begin shipping versions of Domino this week that run on its AS/400 and S/390 computers. The version of Domino for the S/390 will support up to 10,000 connected users, Gerstner said, a significant increase that signals Lotus' attempts to reduce the price-per-port and boost the return on investment for companies that buy Notes and Domino. Gerstner also sought to differentiate Lotus from its rivals by highlighting the investment IBM is making in the Java software development language, which Gerstner said involved 1,000 developers at IBM and Lotus and would consume "hundreds of millions of dollars" in the next few years.

In the key area of service and support, however, Gerstner acknowledged that Lotus has stumbled. Some of Lotus' key business partners have been rankled by the aggressive entry of IBM's ISSC services unit, as well as Lotus' own expansion of its installation and maintenance activities for Notes and Domino, which have cut into the systems integration revenues of its partners. "We must fix Lotus' service and support problems," Gerstner said.

Earlier, with Gerstner and John M. Thompson, IBM's software honcho, sitting in the front row of the cavernous auditorium, Lotus executives predicted that Lotus would add 8.5 million users of its Notes groupware technology by the end of 1997, bringing the cumulative number of Notes shipments to 18 million. Analysts say the number of actual users lags behind the figure for shipments, but most expect Lotus to remain the market leader in groupware in 1997.

Gerstner may have been the only person in the crowd of the 10,000 customers, software developers, and business partners attending Lotusphere who was dressed in a business suit. But Gerstner suggested that his formal attire might pay off for Lotus. "I'm going back to New York very soon to meet with a consortium of bankers to get Mike his money," Gerstner said, referring to a teasing request made earlier by Lotus Executive Vice-President Michael D. Zisman that Gerstner "send money."

By Paul Judge in Boston