IBM's Lotus Gets Fresh Legs - TheStreet

SAN FRANCISCO - IBM's (IBM) - Get Report Lotus Notes was once the dominant software for corporate communications, until it was pummeled by Microsoft's (MSFT) - Get Report desktop and communications software.

Now the Lotus brand is springing back to life.

Buried in IBM's recent earnings report were signs of a resurgence in Lotus Notes and its Domino 8 Server, which together make up the company's fully integrated email, messaging and collaboration suite. IBM acquired Lotus in the mid-1990s.

Lotus has taken a beating: Microsoft Chief Operating Officer Kevin Turner said recently that his company's Exchange email server, SharePoint collaboration software and Office products replaced 4.86 million Lotus users, or "seats," in the fiscal year just ended.

"Microsoft has a brand image that has put them ahead of IBM in the email space with Microsoft Exchange Outlook and -- in the move toward IP telephony communications -- with its Office Communications server and Office Communicator client," says IDC analyst Mark Levitt.

In late 2007 and early 2008, IBM added several collaboration features and capabilities to the Lotus family. And in June, it

added a paid-support option

for Symphony, its free desktop-productivity software that is Big Blue's answer to Microsoft's Office. Support is considered crucial to winning corporate accounts.

The work is paying off: Lotus scored a few big customers during its second quarter, including one of the Big 6 accounting-consulting firms, which bought the entire Lotus and Domino portfolio for 150,000 seats. The portfolio includes Sametime, a collaboration platform.

Another client deal with a financial institution in India is "the largest Asian customer we've had to date," adding 300,000 seats, said Bob Picciano, IBM general manager for Lotus and the Websphere product lines. That client is using Lotus in conjunction with Symphony.

IBM also inked Lotus deals with banks in the U.S., the UK, and Germany during the quarter.

Picciano credits Lotus' and Sametime's Web 2.0 capabilities that enable businesses to incorporate social networking internally, as well as the product's collaboration portal and unified telephony.

These new deals went a long way to growing Lotus revenue 21% year over year during the second quarter ended in June, compared with growth of 12% for the same quarter of 2007.

Revenue in IBM's software segment grew 17% year over year to $5.6 billion during the second quarter. The company doesn't break out Lotus revenue, but the brand is one of five so-called middleware lines that together accounted for $4.3 billion during the quarter and $15.5 billion in 2007.

And software is one of IBM's highest-margin businesses, at 23.7% during the quarter, compared with 14.2% for the company.

In a recent IDC survey of business's future plans for spending in communications products,

Cisco

(CSCO) - Get Report

came out in the lead -- not surprising given its networking and telephony equipment, Levitt said. But Microsoft and IBM ran fairly evenly as the second choice, with Microsoft having a slight lead in a couple of industries as the vendor they will turn to, he added.

"Long term, Microsoft has a stronger presence in the desktop with Office," Levitt says. "But IBM is looking to find places where Lotus Symphony can meet the needs of users who don't need full-blown Office."

"They are still head-to-head competitors. Each one is going to claim winners and competitive wins from the other," Levitt says.

IBM is still expanding the Lotus family with its beta testing of Blue House, the code name for several hosted collaboration products and features from both IBM and its partners to be offered on demand by subscription. Its on-demand web conferencing software, Sametime Unite, is already generating subscription revenue.

Microsoft is not exactly sitting on its Office and Exchange laurels. The company now sells hosted versions of some of its software by subscription, with more to come. Online releases of Exchange, SharePoint and Office Communications will be delivered by the end of the calendar year.