IBM Acquires Lotus for $3.55 Billion: Strategic Move to Supplement Mainframe Revenue Stream

IBM's purchase of Lotus for $3.55 billion is a strategic move to supplement its declining mainframe revenue stream and capitalize on the growing market for professional services. As part of the transaction, IBM Chairman Louis Gerstner has announced that Jim Manzi will retain his position as CEO of Lotus and become a senior vice president at IBM, ensuring a smooth transition and stability of the Lotus workforce. The acquisition is expected to provide a psychological edge for IBM, enabling the company to capture a windfall of migration dollars and secure the future role of the mainframe.

Key Takeaways:

• IBM has acquired Lotus for $3.55 billion, with a strategy to keep Lotus intact from a brand name, management, and employee benefit perspective.
• Jim Manzi will retain his position as CEO of Lotus and become a senior vice president at IBM, ensuring a smooth transition.
• The acquisition is expected to provide a significant boost to IBM's professional services, with potential revenues of over $1 billion.
• IBM's mainframe business is experiencing a decline, but the acquisition of Lotus is seen as an opportunity to supplement the revenue stream.
• Lotus Notes is expected to provide a psychological edge, enabling IBM to capture migration dollars and secure the future role of the mainframe.

Statistics:

• The acquisition price is approximately $3.55 billion.
• Lotus Notes is expected to have sales of more than $325 million in 1995.
• The accompanying services could be worth more than $1 billion to IBM.
• Professional services, such as consulting, integration, maintenance, and support, are commonly five times that of Notes software sales.
• The software piece of the deal is considered "nice to have," with the service business providing the primary value proposition.

Sources:

• Business Wire, "IBM to Acquire Lotus Software" on June 12, 1995.
• Dara Queen, IDC, 508/872-8200.