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  1. 1H12 SWG Business Partner Assessment (BPA)An assessment of the SWG opportunity, buyer behavior, trends, and competitor partner programs to drive IBM Software business with Business PartnersLaura Fonda, Market Development, Principal Advisor – SWG BP & IDRLisa Lindblom, Market Insights, Team Lead – SWG Market AnalysisJiten Rajani, Market Insights, Strategy Consultant Deepak Patnaik, Market Insights, Associate Market AnalystRena Chiu, Marketing Specialist Material in this presentation is IBM Confidential and cannot be shared outside of IBM

  2. Table of contents Executive Summary Opportunity Buyer Behavior Trends Competition Key Findings & Recommendations 1H12 SWG BP Assement | IBM Confidential

  3. Executive Summary 3 1H12 SWG BP Assessment | IBM Confidential

  4. Table of contents Executive Summary Opportunity Buyer Behavior Trends Competition Key Findings & Recommendations 1H12 SWG BP Assement | IBM Confidential

  5. Middleware will contribute 49% of the software opportunity in 2012 with a served market opportunity of $142B Opportunity: Total Overview $1962B $315B $142B Security Systems OS Tivoli Served:91% Non Served:9% Collaborative Solutions Services Middleware Industry Solutions Business Analytics Software Information Management Applications Rational Hardware AIM/Web Sphere 2012 AGR: 1.8% Served + Not Served 2012 AGR: 1.8% Served + Not Served 2012 AGR: 2% Served Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 5 1H12 SWG BP Assement | IBM Confidential

  6. 52% of the SWG opportunity comes from two needs, while Enterprise Mobility has the highest 2012-15 growth Opportunity: Total SWG Overview 2012 Total Market Opportunity $147B ($5B not captured with a capability) 2012-15 Relative Growth by Business Need Source: IBM Market Insights, 1H12 IBM Software Capabilities 05 02 12, FX Plan Rate 6 1H12 SWG BP Assement | IBM Confidential

  7. There are significant potential growth opportunities for IBM BPs across the IBM Software portfolio aligned to client business needs Opportunity: Total SWG Overview Source: IBM Market Insights, 1H12 IBM Software Capabilities 05 02 12, FX Plan Rate 7 1H12 SWG BP Assement | IBM Confidential

  8. All GMTs exceed the 4.8% average middleware growth rate; NA IOT is the only mature market that exceeds average Opportunity: Total SWG by Geo 2012 Served Midmarket MW Opportunity by IOT Market Size ($B) Average Market CGR = 4.8% ’12-15 CGR Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 8 8 1H12 SWG BP Assement | IBM Confidential

  9. Opportunity: Total SWG by e-Size IBM SWG middleware has a larger 2012-2015 CAGR for Midmarket vs. Large Enterprises 2015 Middleware Opportunity $164B 2012 Middleware Opportunity $142B 4.6% CAGR Large Enterprise >1000 6.0% CAGR Midmarket 100-999 6.5% CAGR Midmarket 1-99 2.7% CAGR Non Business Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 9 1H12 SWG BP Assement | IBM Confidential

  10. Midmarket Middleware is a $22.5B opportunity, growing at 6% versus Large Enterprise growth at 4.6% through 2015 AIM BA Industry Solutions IM CAGR (2012-15) Collaborative solutions Rational Tivoli 4.6% 6.0% 6.5% 2.7% Opportunity: Midmarket WW Midmarket Opportunity by Brand 2012 Total MW Served Market $142.3B CAGR (2012-15): 4.8% Brands 2012–2015 Growth Security Large Ent (>1000) $74.4B WW Top 5 Midmarket Countries (Served Middleware) Midmarket (100-999) $22.5B Country 2012 Opp $B 2012-2015 CAGR Small (<100) $22.2B Non-business $23.2B WW Top 5 Midmarket Industries (Served Middleware) • BPs are IBM’s lead route to market in the midmarket • Midmarket represents 15.8% of the served middleware opportunity • Tivoli is the top brand in 2012 opportunity, Security solutions & Business analytics are the fastest growing • US has the largest opportunity and India has the highest growth rate • Five industries represent over half of the total opportunity Industry 2012 Opp $B % of Market Source: 1H12 GMV January 2012, SWG Served Middleware, FX @ Constant Currency IMF 11FX 10 1H12 SWG BP Assement | IBM Confidential

  11. Large Enterprise Middleware is a $74B opportunity, growing at 4.6% through 2015 ’12 – ’15 CAGR 4.6% 6.0% 6.5% 2.7% Opportunity: Large Enterprise WW Middleware Opportunity by Brand(2012) 2012 Total MW Served Market $142B 4.8% ’12-’15 CAGR Brands 2012–2015 Growth Large Ent (>1000) $74.4B WW Top 5 Countries (Served Middleware) Midmarket (100-999) $22.5B Country 2012 Opp $B 2012-2015 CAGR Small (<100) $22.2B Non-business $23.2B WW Top 5 Industries (Served Middleware) • Large Enterprise represents 52% of the served middleware opportunity • Tivoli is the top brand in 2012 opportunity, B A is the fastest growing • US has the largest opportunity and India has the highest growth • Five industries represent over half of the total opportunity Industry 2012 Opp $B % of Market Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 11 1H12 SWG BP Assement | IBM Confidential

  12. IBM’s GB segment represents ~half of the SWG market opportunity thru 2015, with contribution evenly balanced across GB-E and GB-MM Sectors GB-E GB-MM Opportunity: Total SWG by Customer Set Brand view is relatively consistent, led by ICS with nearly 60% of their opportunity from GB accounts; Views vary by Geo, led by the GMU at nearly 70% of their opportunity dependent on GB accounts for growth IBM Software Market Opportunity by S&D Customer Sets 2012-2015 WW SWG SWG IOTs SWG SSG SMG NA Europe Japan GMU Software Solutions Group (SSG) Software Middleware Group (SMG) Industry Solutions Business Analytics Collab Solutions Security Systems Tivoli Info Mgmt AIM Rational Source: IBM Market Insights, SWG 1H12 GMV 60412 CC; IBM S&D Customer Set / Coverage Model View 1H12 SWG BP Assement | IBM Confidential

  13. IBM can capitalize on the GB market opportunity gap for software; BPs are the lead channel at ~60% of total, targeted to reach 70% by 2015 Sectors GB-E GB-MM Opportunity: Total SWG by Customer Set vs. Spring Plan IBM Software Market Opportunity vs. Spring Plan by S&D Customer Sets 2012-2015 WW SWG • SWG GB 2015 Growth Roadmap • Grow GB contribution from 23% to 28% of total SWG trans’l revenue by 2015 (+5 pts) • Increase SWG GB BP trans’l revenue participation from 59% to 70%by 2015 (+11 pts) Market SP Market SP SWG NA SWG Europe SWG Japan SWG GMU Market SP Market SP Market SP Market SP Market SP Market SP Market SP Market SP Source: IBM Market Insights, SWG 1H12 GMV 60412 CC; IBM S&D Customer Set / Coverage Model View; SWG Finance Spring Plan May 2012 (Trans’l Rev) 1H12 SWG BP Assement | IBM Confidential

  14. SWG middleware’s 3 year CAGR for the Growth markets (8.6%) has higher growth potential than the Major markets (4.0%) Opportunity: Total by Geo Top 7 Middle 7 Bottom 7 Growth Markets Country Deep Dive, SWG middleware in $M: Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX, IBM Revenue source green dollars 4Q11Industrialization Tool 14 1H12 SWG BP Assement | IBM Confidential

  15. Industries with the highest 2012-15 CAGR in served middleware are not the same industries with the highest 2012 growth Opportunity: Total by Industry Middleware Market Opportunity Growth by Industry (2012 % vs. 3 Yr CAGR) 2012-2015 Growth Total SWG MW Opportunity 2012 Total Market $142.3 B 12-15 CAGR 4.8% • Overall, highest growth (12-15 CAGR) industries include: • Health Provider (7.2%) • Life Sciences (6.8%) • CSI (6.6%) • Petroleum (5.9%) • Telecommunications (5.7%) • Electronics (5.4%) Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 15 1H12 SWG BP Assement | IBM Confidential

  16. In 2012, seven industries make up more than half of the middleware opportunity, with Banking leading at nearly $17.9B Opportunity: Total by Industry 2012 Middleware Industry Opportunity Size in Billion USD 2012-2015 Growth % of 2012 MW Market Opportunity (Total $142.3 B) Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 16 1H12 SWG BP Assement | IBM Confidential

  17. 7 of the top 10 industries by 2012 growth will grow by an incremental of >$10.5B between 2012 and 2015 Opportunity: Total by Industry 2012 Middleware Industry Opportunity Top 10 Industries in $B WW Incremental Middleware Industry Opportunity 2012-2015 Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 17 1H12 SWG BP Assement | IBM Confidential

  18. In the Midmarket, Life Sciences, Health Provider, Utilities, Telecom and CSI are the top 5 growth industries in 2012 Opportunity: Midmarket Industry Midmarket MW Opportunity Growth by Industry (3 Yr CAGR vs. 2012) 2012-2015 Growth Mid Market WW SWG MW 2012 Mid Market $22.5B 12-15 CAGR 6.0% Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist: IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 18 1H12 SWG BP Assement | IBM Confidential

  19. The largest volume of Midmarket opportunity in 2012 can be found in Industrial Products and Wholesale & CPG Opportunity: Midmarket Industry 2012 Mid-Market MW Industry Opportunity Size in $B 2012-2015 Growth % of 2012 Mid-Market MW Market Opportunity (Total $22.5B) Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX 19 1H12 SWG BP Assement | IBM Confidential

  20. Opportunity growth in the Midmarket is also concentrated, with just 5 industries contributing half of the incremental growth to 2015 Opportunity: Midmarket Industry Incremental Mid-Market Growth in $B (2012-2015) By Industry % Total Incremental Mid-Market Growth (2012-2015) By Industry Source: 1H12 GMV January 2012, Served SWG Middleware (5 brands (AIM, IM, Rational, Tivoli, and WPLC); FX @ Hist:IMF Act FX thru 11; Fcst: Constant Currency IMF 11FX, incremental growth is the opportunity increase between 2012 and 2015 20 1H12 SWG BP Assement | IBM Confidential

  21. Opportunity: Channels More customers purchase middleware via indirect channels, accounting for nearly 58% of total middleware 2012 spend CAGR 2012-15 OEM – 7.5% CAGR 2012-15 BP – 7.4% CAGR 2012-15 Direct – 7.7% Source: IDC Nov 11 2011 WW Software Channel Forecaster, 2010–2015 Forecast Update (Nov 2011), IDC categories mapped to IBM brands 21 1H12 SWG BP Assement | IBM Confidential

  22. In 2012, indirect (BP+OEM) is nearly 58% of SWG’s opportunity, with minimal change in the direct/indirect ratio through 2015 Opportunity: Channels Channel Market Opportunity Distribution by Brand 2012-2015 Industry Solutions Collaborative Solutions IM Business Analytics Security Solutions AIM Tivoli Rational SWG MW Source: IDC Nov 11 2011 WW Software Channel Forecaster, 2010–2015 Forecast Update (Nov 2011), IDC categories mapped to IBM brands

  23. Opportunity: Channels AP has the largest 2015 Indirect channel share of market opportunity with 66%, while the lowest is in America, with 53% SWG MW 2012 and 2015 Channel Opportunity Distribution by Region Americas AP WW EMEA Source: IDC Nov 11 2011 WW Software Channel Forecaster, 2010–2015 Forecast Update (Nov 2011), IDC categories mapped to IBM brands 23 1H12 SWG BP Assement | IBM Confidential

  24. For SWG BPs, there is opportunity for increased participation through 2015, narrowing the delta between opportunity and revenue Opportunity: Channels vs. Spring Plan 2011 Market Opportunity vs SWG Preliminary Spring Plan Revenue • 2015: • 34% participation (+10 pts from 2011) • 60% inc. GMSI & SVI influence Source : IDC 2011 WW Software Channel Forecaster, 2010–2015 Forecast Update (Nov 2011), IDC categories mapped to IBM brands IDC categories mapped to IBM brands; IBM Finance - IBM revenue based on SWG organization / SWG Finance 2011-15 Spring Plan Transactional Revenue May 2012 24 1H12 SWG BP Assement | IBM Confidential

  25. Middleware market opportunity growth is on-par for direct and indirect channels, with NA direct growing slightly faster than WW OEMs VARs, ISVs, SIs Resellers Indirect Indirect Direct Direct Opportunity: Channels WW: Indirect channel spend continues to be higher than direct at 58%, with balanced growth rates thru 2015 OEM 7.5% CAGR High Value BPs VARs, ISVs, SIs North America Worldwide 7.5% CAGR Resellers 7.5% CAGR 7.4% CAGR 7.2% CAGR 7.4% CAGR 8.0% CAGR North America Indirect Opportunity 7.5% CAGR High Value BPs continue to represent the largest indirect channel opportunity at 44% North America Middleware Opportunity 7.7% CAGR Worldwide Middleware Opportunity 7.3% CAGR Source: IBM Market Insights,2H11 GMV, IDC North America MW Channel Study, : IDC Nov 11 2011 WW Software Channel Forecaster, 2010–2015 Forecast Update (Nov 2011), IDC categories mapped to IBM brands Secondary channels: Direct, Multi tier, OEM, Single tier 25 1H12 SWG BP Assement | IBM Confidential

  26. Table of contents Executive Summary Opportunity Buyer Behavior Trends Competition Key Findings & Recommendations 1H12 SWG BP Assement | IBM Confidential

  27. Buyer Behavior – Total SWG IBM Software Buyer Behavior World Wide – Overall Findings Internal roles involved in investment and vendor decision WW/LE – Top Business Objectives and Challenges Non-IT C-Level Execs are the most influential across all stages of investment decision making. VP/Director of IT is the most influential overall . Top Business Objectives Top Challenges Among Top 2 in Involvement Among Bottom 2 in Involvement (% Rating Significant Challenge) % Top (or tied for top) objective Q14a Information Sources from IT Suppliers Q14b Information Sources not affiliated with IT Suppliers % Finding Valuable (Top 7 Shown) % Finding Valuable (Top 7 Shown) Source: SW Buyer Behavior 2011; 2702 Total Projects, Results GMV Weighted 1H12 SWG BP Assement | IBM Confidential

  28. Buyer Behavior – SWG Midmarket IBM Software Buyer Behavior Midmarket – Overall Findings Internal roles involved in investment and vendor decision Top Business Objectives and Challenges Non-IT C-Level Execs are the most influential across all stages of investment decision making. IT Managers/Admin have the most say in vendor decisions. Top Business Objectives Top Challenges Among Top 2 in Involvement Among Bottom 2 in Involvement (% Rating Significant Challenge) % Top (or tied for top) objective Q14a Information Sources from IT Suppliers Q14b Information Sources not affiliated with IT Suppliers % Finding Valuable (Top 7 Shown) % Finding Valuable (Top 7 Shown) Source: SW Buyer Behavior 2011; 1524 Total Projects, Results GMV Weighted 28 1H12 SWG BP Assement | IBM Confidential

  29. Buyer Behavior – WW/LE vs. Midmarket Multiple types of BPs are engaged across the investment and decision process for both WW/LE and Midmarket software projects • SI / Consultants continue to be the lead BP type engaged in WW and large enterprise software projects, followed by VARs and Resellers • For mid-sized firms, VARs and Resellers are more consistently among the top 3 external parties involved across the sales cycle, than they are for large enterprise firms. WW/LE - External Party Involvement in Software Projects Midmarket – External Party Involvement in Software Projects % Involved in Stage * % Involved in Stage * Among Top 3 in Involvement Among Top 3 in Involvement Among Bottom 2 in Involvement Among Bottom 2 in Involvement *Note: multiple responses allowed Source: IBM Software Buyer Behavior 2011; Midmarket – 1524 Total Projects; LE/WW: 1178 Total Projects, Results GMV Weighted 1H12 SWG BP Assement | IBM Confidential

  30. Buyer Behavior – WW/LE Summary Partners are involved in every stage of the WW/LE software investment and decision process, from identification to deployment • Vendors are most likely to be involved in all stages of the investment and decision process • Influence BPs have relatively high involvement in helping large enterprise companies identify needs and determine capabilities, while Resale BPs have more impact in purchase / deployment stages • Emerging Service Providers involvement is seen more in the early stages of needs identification, determining capabilities and advising on components % Involved in Stage of Decision Process* BPs *Note: multiple responses allowed Top BP Type involved Source: IBM Software Buyer Behavior 2011; 1178 Total Projects, Results GMV Weighted, LE = 1000+ employees 1H12 SWG BP Assessment | IBM Confidential 1H12 SWG BP Assement | IBM Confidential

  31. Buyer Behavior – Midmarket Summary Partners influence every stage of the software project investment and decision process for mid-size firms, from identification to deployment • Both vendors and Business Partners are involved in all stages of the investment and decision process • Influence BPs have higher involvement helping mid-sized firms identify needs, while Resale BPs have more impact in determining capabilities, advising on components, and at purchase/deployment stages • Emerging Service Providers involvement is seen more in the early stages of needs identification, determining capabilities and advising on components % Involved in Stage of Decision Process* - Midmarket Software Projects BPs *Note: multiple responses allowed Top BP Type involved Source: SW Buyer Behavior 2011; 1482 Total Projects, Results GMV Weighted, Midmarket = 100-999 employees 31 1H12 SWG BP Assessment | IBM Confidential

  32. Table of contents Executive Summary Opportunity Buyer Behavior Trends Competition Key Findings & Recommendations 1H12 SWG BP Assement | IBM Confidential

  33. Key trends impacting Business Partners in 2012 are inter-related Trends Software partner programs continue to highlight specialization while emphasizing simplification and rewarding top partners Economic recovery continues with slow growth in all IOTs except SW IOT through 2015 but the impact on IT budgets continues to drive BP opportunity Partner-to-Partner (P2P) networking will see a resurgence driven by M&A and the imperative to cross-sell, success will be facilitated by partner programs and social media Vendors are focusing on marketing programs to help BPs generate demand more effectively SMB spending is 44% of total IT spending in 2012, and midsize businesses account for 60% of the SMB spend, a well thought-out channel strategy will help capture this opportunity Business partner types continue to blur, and BPs need to transform their business models to accommodate cloud offerings; vendors need to help usher BPs into these new models Source: IBM Market Development analysis 1H12 SWG BP Assement | IBM Confidential

  34. Expect slow 2012 growth across the global economy, with SW IOT expected to fall into the negative for the year before recovering Trend: Economy The global economy grew about as expected in 4Q, with worldwide growth of 2.5% year-over-year Mature Market country growth of 1.2% y/y, and Growth Market country growth of4.8% y/y. • GDP • Expect the global economy to expand by 2.5% in 2012 – about 0.5 percentage point less than expected a quarter ago – with much of lost growth coming out of Europe. The 17 euro zone economies are now in recession and 2012 euro zone economic activity is expected to decline by 0.5%. • Growth Inhibitors • While 2012 growth in the US and China will be well below average, much of the risk to the global economy will emanate from Europe • The European economies are struggling with three issues – excess sovereign debt, a fragile banking system, and a southern tier that is uncompetitive in the global marketplace • Resource Constraints Remain: • The new economy has forced reductions or caps on resources • Investments are still being controlled until business confidence returns • Core business at same level, new ‘activities’ are incremental • Implications to SWG BP & IDR • The GMU continues to provide the best growth opportunities, and Europe and Japan continue to lag • Investments are still being controlled, expect confidence to slowly build over the next few years • Despite recovery, the economic downturn impacted IT budgets – BPs are turning to services-related opportunities Source: IBM CHQ Economics; “January 2012 Global Economic Update” 01/12; 2010 IBM Global CFO Study 1H12 SWG BP Assement | IBM Confidential

  35. The majority of CEOs report that the economic downturn has impacted their business, but few report a “severe impact” Trend: Economy “Gartner has been surveying CEO attitudes for nine years. Rarely have we seen such comprehensive agreement on economic conditions.” – Gartner CEOs’ View of Economic Downturn Impact on Their Business • CEOs responded to Gartner’s CEO survey in November and December of 2011 • CEOs were downbeat compared with the previous year • The outlook for 2012 is difficult, with the euro crisis and other factors weighing heavily on business confidence. • While few CEOs reported an expectation of severe economic impact to their own firms, a massive 85% expect to see some impact Source: Gartner, “CEO Survey 2012: The Year of Living Hesitantly” March 2012 1H12 SWG BP Assement | IBM Confidential

  36. IDC expects worldwide IT spending growth to fall slightly in 2012 – regionally the biggest drop is in AP Note: growth in constant currency Trend: Economy “IT spending is volatile: some markets outperformed expectations, others softened” – IDC • IT spending growth to rise in: • Western Europe • Japan • CEE • LA • And to fall in: • US • Canada • Asia Pacific • MEA will be flat year-over-year Source: IDC, “State of the Market: IT Spending Review & 2012 Outlook” IDC Web Conference, 3 May 2012 1H12 SWG BP Assement | IBM Confidential

  37. IDC expects worldwide IT spending growth to fall slightly in 2012 – regionally the biggest drop is in AP Trend: Economy “IT spending is volatile: some markets outperformed expectations, others softened” – IDC Worldwide Growth by IT Segment (%) • Software spending has been the major positive trend of past six months, evidence of strategic investments after capital spending cycle of 2010/11 • Assuming economic stability, businesses are investing strategically in IT again Source: IDC, “State of the Market: IT Spending Review & 2012 Outlook” IDC Web Conference, 3 May 2012 1H12 SWG BP Assement | IBM Confidential

  38. Key trends impacting Business Partners in 2012 are inter-related Trends Software partner programs continue to highlight specialization while emphasizing simplification and rewarding top partners Economic recovery continues with slow growth in all IOTs except SW IOT through 2015 but the impact on IT budgets continues to drive BP opportunity Partner-to-Partner (P2P) networking will see a resurgence driven by M&A and the imperative to cross-sell, success will be facilitated by partner programs and social media Vendors are focusing on marketing programs to help BPs generate demand more effectively SMB spending is 44% of total IT spending in 2012, and midsize businesses account for 60% of the SMB spend, a well thought-out channel strategy will help capture this opportunity Business partner types continue to blur, and BPs need to transform their business models to accommodate cloud offerings; vendors need to help usher BPs into these new models Source: IBM Market Development analysis 1H12 SWG BP Assement | IBM Confidential

  39. Software partner programs continue to highlight specialization while emphasizing simplification and rewarding top partners Trend: Specialization “BPs tend to be specialized, so the trend in specialization results in simplification for them” – IDC • Current Situation: • Key vendors have programs organized around specializations and authorizations • BPs tend to be somewhat specialized themselves – they see the new program focus as a benefit • The best rewards are saved for the best BPs • How Program Specialization Relates to Other Trends: • BPs are using vendor and independent Partner-to-Partner (P2P) teaming to fill in the gaps and sell across the stack • What Specialization Rewards Result In: • More skilled BPs • Encouraging BPs to keep doing more • Tying to rewards keeps best BPs close • Implications to SWG BP & IDR • Continue education and enablement efforts, develop key on-boarding resources, highlight top Cloud BPs • Promote the Cloud Specialty as a differentiator • Encourage IBM BPs to partner with other IBM BPs to generate new revenue streams Source: Analyst Inquiry – IDC, 3/12 1H12 SWG BP Assement | IBM Confidential

  40. BPs value vendor specializations as important to their business, with technical competency and differentiation leading the way Trend: Specialization The importance of specializations among BPs is in line with key vendor program changes • Nearly 2/3rd of EMEA BPs surveyed cite vendor specializations as important in 5 key areas How important are vendor specializations to your business in the following areas? Percentage of respondents n=103, EMEA BPs Source: Canalys, “Candefero Channel Survey Results” 11/10 1H12 SWG BP Assement | IBM Confidential

  41. Specialization programs are beneficial to both vendors and partners when an appropriate balance of benefits exists Trend: Specialization “Specialization programs can become the next best thing in the vendor/partner win-win business relationship” – PartnerPath Triggers for when a specialization program makes the most sense, both for vendors and their partners, generally relate to the need for scaling sales efforts and creating a more proactive, partner-led sales and service approach When Are Specializations Important? There needs to be a balance between what’s good for the vendor and what makes solid investment sense for the partner Source: PartnerPath, “How Special are Specializations: Does the Value Warrant the Investment?” October 2011 1H12 SWG BP Assement | IBM Confidential

  42. Core attributes of successful specialization programs align with key advice for tech vendors Trend: Specialization “The structures and benefits of many… specialization programs vary widely based on the value drivers of the vendor” – PartnerPath Source: PartnerPath, “How Special are Specializations: Does the Value Warrant the Investment?” October 2011 1H12 SWG BP Assement | IBM Confidential

  43. Increasing partners’ competency is a key specialization driver for vendors, and higher profitability is the top priority for partners Trend: Specialization “The structures and benefits of many… specialization programs vary widely based on the value drivers of the vendor, whether they’re for their end-users, their channel partners, or for themselves.” – PartnerPath Specialization builds on typical training & certification skills with further focus on solution sets, services delivery skills and/or vertical market expertise Priorities for Specialization • Vendors’ top priority for specialization programs is increasing partner competency – a secondary priority for partners • Partners’ top priority is increasing their profitability – a secondary priority for vendors • More effective local direct sales teaming is a common expectation from partners of all sizes Source: PartnerPath, “How Special are Specializations: Does the Value Warrant the Investment?” October 2011 1H12 SWG BP Assement | IBM Confidential

  44. Most partner programs focus specializations on technology solutions, and partners plan investments in both technology and services Vendor Program Focus Partner Future Partner Current Trend: Specialization “Each IT vendor has unique needs in terms of the skills they’re trying to cultivate within their partner community.” – PartnerPath Vendor Specialization Programs & Partner Investment Plans A comparison of vendor specialization programs and partner investment plans show key focus areas and alignments • Specialization Focus vs Partner Focus • Technology Solutions: top focus for both vendor programs and future partner investment • Services: second highest for vendor programs and for future partner investment • Vertical: lower important for programs, on-par with future partner investment • Customer: Highest ranked for “current” partner investments; lowest for vendor program focus – but future partner investment has smaller delta Source: PartnerPath, “How Special are Specializations: Does the Value Warrant the Investment?” October 2011 1H12 SWG BP Assement | IBM Confidential

  45. In the past 2 years, top software vendors have made key changes to their partner programs to focus on BP specialization Trend: Specialization IDC believes this is a very positive trend that aligns the needs of vendors, BPs, and customers • More existing partner programs will shift from volume-based to competency-driven • Competency criteria typically includes customer references, individuals who have passed product certification tests, sales of a specific product, and products that have passed technical evaluation. Revenue is no longer the only criteria. • IDC advises software vendors launching partner programs to move directly to a competency-based model Source: IBM Market Development, “Partner Program Changes Emphasize Specialization & Industry Expertise”; IDC, “Worldwide Software Channel and Alliances 2011 Top 10 Predictions” 2/11 competitor web sites 1H12 SWG BP Assement | IBM Confidential

  46. Key trends impacting Business Partners in 2012 are inter-related Trends Software partner programs continue to highlight specialization while emphasizing simplification and rewarding top partners Economic recovery continues with slow growth in all IOTs except SW IOT through 2015 but the impact on IT budgets continues to drive BP opportunity Partner-to-Partner (P2P) networking will see a resurgence driven by M&A and the imperative to cross-sell, success will be facilitated by partner programs and social media Vendors are focusing on marketing programs to help BPs generate demand more effectively SMB spending is 44% of total IT spending in 2012, and midsize businesses account for 60% of the SMB spend, a well thought-out channel strategy will help capture this opportunity Business partner types continue to blur, and BPs need to transform their business models to accommodate cloud offerings; vendors need to help usher BPs into these new models Source: IBM Market Development analysis 1H12 SWG BP Assement | IBM Confidential

  47. Partner-to-Partner (P2P) networking is experiencing a resurgence with cloud, social media, and cross-stack selling as key drivers Trend: P2P “The structures and benefits of many… specialization programs vary widely based on the value drivers of the vendor” – PartnerPath • When it comes to P2P, IDC cites the following: • Megavendor ecosystems are growing and diverse • Social and Community impetus is driving and facilitating P2P • Cloud is encouraging more partner collaboration • Growing number of P2P Groups: • IAMCP – International Association of Microsoft Channel Partners • IA4SP – International Association for SAP Partners • HTG – Heartland Technology Groups • Socius – Microsoft Master VARs (vendor-led) Source: IDC, #233402 “Software Partnering State of the Nation” December 6, 2011 1H12 SWG BP Assement | IBM Confidential

  48. Among the key relationship factors that are important to partners, P2P elements make the list – and IBM’s community is highlighted Trend: P2P “Partner loyalty correlates to relationship factors” – Forrester Research Source: Forrester Research Inc, “Earning Channel Loyalty in a Hypercompetitive Market” 05/12 1H12 SWG BP Assement | IBM Confidential

  49. BPs focused on Cloud are more willing to engage in P2P (Partner-to-Partner) teaming Trend: P2P P2P can help facilitate more uptake of Cloud computing amongst BPs • In a Forrester survey, 71% of partners indicated that they collaborate with other partners • Partners indicate that they’re not seeking collaborative web meeting tools but instead social networking-like services that make it easier for them to find, bid, and deliver with other partners Forrester Research, “Channel Partners’ Needs in the Era of Cloud” 01/11 Source: Forrester Research “Channel Partners’ Needs in the Era of Cloud” 01/11 1H12 SWG BP Assement | IBM Confidential

  50. While most BPs partner with vendors to develop cloud capabilities, P2P is key as well – “peers” are involved nearly 30% of the time Trend: P2P “Channel partners looking to improve their cloud standing are turning to vendors for support and partnership” – CTTA • Overwhelmingly, partners still look to vendors for cloud capabilities – but 3 key P2P efforts are evident overall, by IT providers, and for telephony agents How Partners are Developing Cloud Capabilities Source: CTTA, “The State of the Cloud Channel” March 2012 1H12 SWG BP Assement | IBM Confidential

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