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IBM In Denial Over Lotus Notes

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[From Forbes.com]

NEW YORK - The marketing folks in IBM's Lotus division are starting to sound like the Black Knight in Monty Python and the Holy Grail, who insists he's winning a fight even as he loses both arms and legs: "'Tis but a scratch," the Black Knight declares after one arm is lopped off. "Just a flesh wound," he says after losing the other. "I'm invincible!"

The same goes for IBM's (nyse: IBM - news - people ) Lotus, which keeps declaring victory even as Microsoft (nasdaq: MSFT - news - people ) carves it up.

First Microsoft consumed Lotus's 1-2-3 spreadsheet business. Lotus spinmeisters insisted Microsoft wasn't really winning because Lotus 1-2-3 still had a larger installed base. Eventually that wasn't true either.

Now Microsoft's Exchange has clawed its way to the top of the corporate e-mail market, displacing Notes/Domino, which once dominated e-mail and was the main reason IBM paid $3.2 billion to acquire Lotus in 1995.

Exchange, first released in 1996, now outsells Notes/Domino and has a larger installed base and more momentum, many analysts say.

Yet IBM still claims Notes is the "best-selling" e-mail product on the market. And the rah-rah Lotus faithful--consultants who make a living by maintaining Notes and writing specialized Notes applications--promote this version of reality to their customers. (IBM declined to comment for this article.)

Conceived in 1984 and introduced in 1989, Notes has a user interface that some consider dated and overly complex. The product is also costly to operate, some say.

Even IBM seems to think something new is needed. It has developed an e-mail program called Workplace Messaging, which is part of a new family of software products.

IBM says Workplace Messaging won't replace Notes. Instead, IBM says Notes will, ahem, evolve and become part of the Workplace family.

The truth is that the spin is aimed at keeping Notes customers from dropping Notes and switching to something else.

Meanwhile, Notes consultants have resorted to bashing market researchers who say Notes is slipping, suggesting on blogs that these analysts are extreme outliers who lack credibility and/or are shills who were paid off by Microsoft.

But the fact is that all but one of the top market research firms say Microsoft Exchange is now the leading e-mail product. Even Gartner Group, the lone holdout, says IBM maintained a mere 1.8% market share lead--but that was in 2003.

Nevertheless Notes zealots cling to this Gartner statistic, touting it to support their "We're number one" rhetoric.

For the record, here is a rundown of analyst opinions:

  • Gartner: In 2003 Gartner estimates IBM had a 46% share of e-mail sales vs. 44.2% for Microsoft. The firm won't comment on 2004 sales yet.
  • IDC: In 2003 Microsoft outsold IBM $770 million v. $709 million. The final 2004 figures have not been tallied but the preliminary estimate is that "Microsoft will go up and IBM will go down. The delta is growing," analyst Mark Levitt says.
  • Ferris Research: Microsoft has a 60% share of the business e-mail market vs. 25% for Lotus. Microsoft has a larger installed base and generates greater license fees than IBM.
  • Meta Group: "Exchange is picking up share, and Notes/Domino is losing share. I'm seeing more defections from Domino. There is migration from Domino to Exchange," says analyst Matt Cain.
  • Radicati Group: In 2004, Microsoft had 115 million seats installed worldwide vs. 83 million for IBM. By 2009, Microsoft will have 200 million seats installed vs. 103 million seats for IBM's Notes and Workplace products combined.
  • Info-Tech Research Group. Among midsize companies ($1 billion or less in annual sales) in 2004, Microsoft had a 33% market share and IBM had 25%. By end of 2005, Microsoft will reach 35% with IBM dropping to 18%. "A lot of Notes shops are looking elsewhere," analyst Carmi Levy says.

Despite all this research, IBM and its head-in-the-sand Lotus "community" insist they're still number one. Which, paradoxically, helps explain why they're not.

[Read on Forbes.com]

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