Gerstner's $5 billion spending spree

IBM CEO says Big Blue will invest $1 billion in Linux next year, as part of its $5 billion strategy to tackle the hard problems facing e-businesses.

NEW YORK -- IBM Corp. is planning to invest $1 billion in Linux in 2001 and another $4 billion in "e-sourcing" over the next three years, IBM chairman and CEO Louis Gerstner said Tuesday morning.

Delivering the keynote address at the eBusiness Expo and Conference, Gerstner said IBM's planned $5 billion spending spree -- especially in the areas of integration and infrastructure -- was intended to address the hard problems facing e-businesses in the coming years. The company's name for this strategic thrust is "e-business infrastructure" -- the tagline for a marketing push on which IBM (ibm) plans to devote upward of $500 million in 2001, 10 times the amount it spent on the theme this year.

After a brief initial interruption by a handful of protestors over environment-related concerns, Gerstner spent much of his hour-long keynote speech taking potshots at companies who thought of e-business as a get-rich-quick fad.

"The 'e' in 'e-business' came to stand for 'easy,'" Gerstner told the audience at the Jacob Javits Convention Center. "Easy life, easy money, easy business."

He poked fun at companies that bought into the idea that "instead of revenues and profits" the new business metrics became "eyeballs and stickiness."

"Now, some people are realizing the business world doesn't work that way," Gerstner said. "The Internet ... doesn't change the fundamental behavior of consumers."

Gerstner said the market has come full circle, just as he had predicted it would.

People are figuring out that "e-business is just business -- real business," Gerstner said. "And real business is serious work.

"The winners will be the people who stick with it and do the work -- especially in integration and infrastructure," he added.

IBM -- the company that coined the term "e-business," as Gerstner reminded attendees -- is positioning itself to be a major player in Chapter 2 of the e-business saga, he said.

Already, IBM has spent $1 billion to build its e-business brand and portfolio, Gerstner said. Now, IBM wants to help customers get more than just business-to-consumer commerce benefits from e-business. In the coming months, IBM is aiming to help customers tackle other business-process transformations in the areas of e-procurement, customer relationship management, and knowledge management, he said.

Key to addressing these areas is standards adherence, Gerstner said, and this is where Linux comes into play. IBM will invest $1 billion in 2001 to step up its Linux work, he told attendees. He said IBM will spend some of this money on initiatives already in the works for the 1,500 IBM developers currently Linux-enabling IBM's products and helping customers move Linux into production.

"We're convinced Linux can do for business applications what the Internet did for enterprise applications," Gerstner said. In short, "delivering on any-to-any computing."

Gerstner made no bones about the fact that IBM's decision to bet big on Linux also is an attempt to slow the growth of IBM competitors Microsoft Corp. (msft), Sun Microsystems Inc. (sunw), and EMC Corp. (emc), three companies that have distanced themselves from Linux.

"Sun, Microsoft, and EMC are running the last proprietary plays of this business," Gerstner quipped.

Gerstner also said that IBM is planning to step up its spending in "e-sourcing," which he defined as the logical extension of outsourcing. Last year, IBM derived an estimated $14 billion in revenue from outsourcing, Gerstner said. And over the next three years, IBM plans to invest an additional $4 billion in this area, some of which will be spent on opening 50 more hosting centers.

"An increasing number of customers will buy IT as a utility -- like a service over the Web," Gerstner said.

As e-sourcing takes hold, IBM expects to sell more products to fewer "mega-customers," in Gerstner's words. In turn, IBM is expecting these larger hosting and service-provider customers to resell IBM products and services to their own customers.

Gerstner ended his keynote speech on a feel-good note, predicting that e-business would "improve the world and lives of people."

"Over the past four to five years, we've lived through a wild ride of experimentation," he noted, calling that phase, "Internet Chapter 1." Now, it's time for IBM and the industry to move to the next phase, which, hopefully, will be characterized with the "maturity and experience that was missing" the first time around, Gerstner said.

Gerstner's keynote marked the opening of the fourth eBusiness Conference and Expo, which is being held at the Javits from Dec. 12 through Dec. 14.

Reuters contributed to this story.