What does it all mean?

August 28 2005

While I was taking a few days off last week, there was a lot of talk in the Lotus-related blogosphere and community about market share.  Both Gartner and IDC published their 2004 share reports for the messaging/ICE (integrated collaborative environment) markets almost two months ago.  For whatever reason, last week's cite of these numbers got more attention than the reports did themselves.  I don't want to focus on that article -- other blogs have dissected it.  I do want to talk about market share and what it all means.

It's important to understand that most of what's said here is thought I've shared elsewhere over the last several years.  Some of what I'll write will necessarily sound defensive. But I think that there's a lot of good news at the moment, and I want to make sure that we keep that in perspective as well.

First, don't lose sight of the bottom line.  According to Gartner, for 2004, IBM commands an impressive 45% of the e-mail market. [Note that this number wasn't cited in the article referenced above].  IDC's number is a bit lower.  Either way, the corporate e-mail/ICE market is now entirely a duopoly -- with Novell, Oracle, and Bob's e-mail server fighting it out for less than 10% of the market.

I want to respect the copyright and hard work of both Gartner and IDC, and thus, not go on to spew all the contents of their respective market reports.  What is important to note is that looking at one number taken from those reports doesn't necessarily tell the whole story -- who is growing (hint: it's not just one vendor), who has potential to grow further, who leads in particular regions.  Whichever of these analysts you work with, go get their reports.  It's interesting to note that no analyst from either firm was quoted in any of the recent articles highlighting their reports -- I suspect they'd offer the same texture that the reports themselves do.

Remember that these numbers are for 2004.  We're done with eight months of 2005 already.  In the two publicly-reported quarters of 2005, IBM has indicated growth in the Notes/Domino business.  IDC published a fantastic report just a few weeks ago which highlights why they believe IBM is now gaining share in this very same market.  

Second, let's talk about what market share really means in this market.  Remember, I have made these same points for the last few years, whether someone said Lotus was #1 or #2 or whatever in this market.  Share is difficult to measure in software, especially in e-mail. Why?  This isn't like toothpaste or automobiles or even server hardware, where someone can physically count every unit sold.  That's why for almost all software markets, IDC and Gartner measure annual vendor revenue.  There's no way to accurately adjust these numbers for "shelfware."  That's a problem in e-mail, because a very common way for customers to acquire the right to use Microsoft Exchange Server is through Microsoft's Enterprise Agreement (EA) "Core CAL" bundle.  The Core CAL includes the right to use Windows, Exchange, SharePoint, and SMS.  Don't want all of those?  Well, that's the bundle available in the EA, and through it, customers appear to sometimes buy something they don't need in order to buy something they do.  IBM offers bundles that include Notes/Domino (called CEO or ELA licenses), but with a lot of flexibility to include or exclude those or other products.  The shelfware equation is simply different between the two products.  Thus, revenue isn't a perfect picture for this market.  When the shoe was on the other foot, one Microsoft employee used to include this line in his pitch to MS partners -- "Yes, IBM is #1 in e-mail by revenue, proving that they are the best at overcharging customers for it".  I wonder what he'd say now.

Last, a first-time shift in rankings doesn't mean the end of a product line.  If there were other data points that indicated the product in question was entering decline, there would be cause for concern.  Let's be clear -- Notes/Domino is hardly on the decline. Data, not conjecture, follows:

  • At Lotusphere 2005, IBM announced 1468 new customers for Notes/Domino during 2004.
  • In the last three fiscal quarters, IBM has announced double-digit revenue growth for Notes/Domino.
  • Over 80% of all Notes/Domino customers are running Notes/Domino 6.x, the most successful upgrade cycle of the modern (post-R3) Notes product lifecycle.  By comparison, Steve Ballmer was quoted coming out of MS's partner conference as saying that only 15% of Office customers have upgraded to Office 2003, which shipped about the same timeframe.
  • Respected industry analysts like IDC, Gartner, Burton, Redmonk, and Forrester have all published positive reports about Notes/Domino 7, and the next release of Notes ("Hannover"), during 2005.
  • In the next few days, IBM will launch Notes/Domino 7, the best release of the product ever.  The release is coming on-time (some say that IBM is even early vs. expectations), and a multi-million US dollar worldwide launch will ensue.
Some of you have cited other data points.  Business partners, both small and large, have reported growth and renewed interest in their products and offerings.  Analysis of job postings on sites like UK Jobserve shows a constant and steady demand for Notes jobs.

As was noted several times while I was in Dublin the last few days, we're about to enter a very busy and exciting time for Notes/Domino.  There are customers planning upgrades to "7" almost immediately upon release, and SearchDomino says 63% plan to upgrade by end of 2006.  What happened last week wasn't a tectonic shift, red alert, end of the race, or any of those other metaphors.  Microsoft has been gunning for Notes customers ("ripe for the plucking", remember?) throughout 2005, and I think we can expect this to continue.  I cannot give you a list of customers who have migrated to MS this year, though -- for all the fire and brimstone, the number of losses I'm aware of is extremely small.

So, with all of this, I'm not taking my toys and going home.  There are over 100 Notes/Domino 7 launch events scheduled in the next 75 days.  I can't attend too many in person, but you'll see executive commitment from IBM at the vast majority of them.  The product rocks, the roadmap is clear, and for all the noise coming out of Redmond, ultimately they have a pile o' 16 products that somehow try to compete with Domino.  I'll keep my bet on yellow, and can't wait to see what we are talking about this time next year.

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