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Icons of Progress
 

e-business

 

One of IBM’s most important inventions wasn’t an invention at all. It was a game-changing insight, which the company famously coined “e-business.”

During the heady days of the Internet’s rapid growth in the mid-1990s, many saw the gold-rush to the Internet as a “new economy” that would soon displace the existing “old economy” of established businesses. Companies like IBM would soon be seen as rapidly fading giants of an earlier era—much the way early personal computers from Atari and Apple had appeared to signal the end of IBM’s center-stage role in the world of IT.

IBM, however, saw something completely different on the horizon. In the growing tangle of networks, intranets, servers, web sites, browsers and search engines, they recognized an emerging new infrastructure—a vast and powerful platform that all businesses, large and small, could use to do more than sell products and promote their brands.

This new, network-centric world, as it was called early on, was going to change the very nature of how companies worked. Read more about the Rise of the Internet in this related Icon of Progress.

In 1995, after leading IBM out of its near financial collapse just two years earlier, CEO Louis Gerstner found himself sitting through a long day of company presentations. One of the last on the agenda explained how the Internet might become a useful business-to-business tool. That’s when it hit him.

If the strategists were right, he wrote in his 2002 memoir, Who Says Elephants Can’t Dance, and the network could enable and support incredible amounts of communications and transactions among people and businesses … then two revolutions would ensue: one in computing, and one in business.

He reasoned that workloads would shift from personal computers—the rock stars of the computing world in the mid 1990s—to larger enterprise systems and the network itself. At the end of the day’s meetings, Gerstner gave his direct reports three weeks to come back with their ideas on how to harness the full power of the new networked world. He soon found others, such as Dennie Welsh, head of the Integrated Systems Services Corporation (a wholly owned IBM subsidiary) at the time, and marketing executive John Patrick, who shared exactly the same view.

Gerstner eventually formed the IBM ® Internet Division under Irving Wladawsky-Berger, and gave him the job of formulating and rolling out the company’s Internet strategy across all business units, to get everyone, he wrote, “to embrace the Net.” IBM would be the “networked” example for customers.

Now came the uphill job of selling the network-centric idea to customers and a general public smitten with the narrow “end user” side of the Internet. Gerstner had taken a lot of hard shots from the press when he came to IBM in 1993 and announced, “The last thing IBM needs right now is a vision.”

Now he had a vision, and he tried selling the network-centric imperative to Wall Street analysts in March of 1994. No one seemed to pay any attention. In the fall of 1995, he tried the network-centric message again at the massive Comdex show in Las Vegas. He bravely told the audience that “network-centric computing was about to end the PC’s reign at the center of the computing universe.”

But this was 1995. The day after Gerstner’s keynote, Microsoft’s Bill Gates gave a keynote presentation extolling the merits of essentially a desktop-centric future.

However, the network-centric idea was out there looking for a place to take root. Sun was starting to use the phrase “the network is the computer,” and Oracle was talking about “the network computer.”

IBM went back to the drawing board. They needed to talk about this bright new future in a way that customers and IBM employees would understand. The marketing people did their job, and came up with the term “e-business.”

It wasn’t extremely impressive, but it seemed a solid enough name. The company poured some US$500 million into a massive advertising and marketing campaign to demonstrate the value of the e-business vision, and to show that IBM had the talent, the services and the products to help customers capture the benefits of this new way of doing business.

The advertising, created by Ogilvy & Mather, was a series of black-and-white “office dramas” that became a huge success. They captured the confusion most people felt at the time about Internet-based business. They showed how the Internet could add value, and how IBM could help companies “do real business on the web.”

It worked. Within six years, IBM became the world leader in providing the services and the products for customers now eager to transform their businesses into network-centric “e-businesses.” By the year 2000, IBM’s business had grown from US$64 billion (in 1994) to more than US$88 billion, and net income had nearly tripled.

Said Gerstner, “We found our voice, our confidence, and our ability once again to drive the industry agenda. Our messaging allowed our customers to see benefits and value that were not being articulated by our competitors. … The vast new challenges of networked computing reenergized IBM research and triggered a new golden age of technical achievement for the company.”