The answer, in a word, is fear. IBM is terrified that it will be in mortal peril unless it can get its hands on Lotus Notes. Notes, for the nontechies among us, allows people at personal computers all over the world to link with each other quickly and easily. Think of it as e-mail with steroids (page 50). Linked PCs, the techies tell us, is the next big computer wave. It’s supposed to supplant individual PCs the way PCs supplanted mainframes.
It may seem peculiar for a company as big and as rich as IBM–it has more than $10 billion of cash on hand–to worry about its very existence. But Big Blue blew the switch from mainframes to PCs, was on the rocks for a while and only now is sort-of-maybe recovering. In fact, the computer world is filled with once dominant products and companies that became obsolete almost overnight. Remember Wang Laboratories, the company that virtually invented desktop word processing? It went Chapter 11 in 1992 because its founder, An Wang, missed the PC boat. Remember Digital Equipment, once one of the world’s hottest computer companies? It’s fighting for its life because its legendary founder, Ken Olsen, missed the boat, too. Remember Multimate and WordStar, once the leading word-processing programs? Not many people do. These programs had their day in the sun but were replaced virtually overnight when their makers didn’t produce timely, updated versions. For that matter, Lotus’s 1-2-3 spreadsheet program used to own the world. But Lotus waited too long to make 1-2-3 for Macintosh and Windows, and Microsoft ate its lunch. “If you have a sense of history in this industry, it’s very humbling,” Pete Higgins, a Microsoft group vice president, said in an interview.
For that matter, fear helps explain other seemingly irrational moves by big companies, such as MCI’s overpaying for a big stake in Rupert Murdoch’s News Corp. and regional phone companies’ plunging into cable TV and programming. Phone companies fear that cable companies will take their phone business away, and cable companies fear that phone companies will poach on their cable business. So you try to take business away from other companies before they can take business away from you. After all, when you think your survival is at stake, you don’t worry about how much something costs.
Microsoft offered a humongous price for Intuit, the maker of Quicken software, because it was willing to pay almost anything to become the dominant player quickly in the financial-services-by-computer biz. The Justice Department broke up that deal. IBM is trying to buy the Notes networking biz before someone like Microsoft builds a better mousetrap and clobbers Lotus.
I can’t tell you Gerstner’s side of things, because he wouldn’t agree to an interview that included me, and NEWSWEEK wouldn’t agree to one that didn’t. Buying Lotus to get Notes looks good on paper. But buying companies to get their technology is fraught with danger as AT&T learned with NCR (now known as –yech! –AT&T Global Information Solutions) and IBM learned with Rolm, and companies like Kodak and Xerox learned when they tried to build the “office of the future” about 15 years ago. Look for more fear-driven deals as the computer and telecom businesses keep converging. And as the people who run them have more to worry about than ever.
