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John Patrick on Boston radio

Thursday, June 1, 2000

Time: 08:30 AM – 09:30 AM
Station: WBWN-AM Radio
Location: Boston
Program: Before The Bell
By: Mark Crociati

Mark Crociati (senior financial analyst):

And today we have with us John Patrick, (unintelligible). John is an IBM… (tape cuts off) …vice president of Internet Technology of IBM Corporation and like every industry, they have their elite. Today, we’re excited to have one of technology’s best to talk about a topic that is near and dear to our hearts. If you’re an investor, you certainly must have invested in one of these high tech, or Internet companies, the future of the Internet.

On John Patrick’s business card, it says he’s an IBM vice president of Internet technology, but if you read between the lines or have heard or speak to him at the conferences, when he speaks at the conferences throughout the world, you realize that John is actually an Internet visionary.

Welcome, John.

John Patrick (IBM): Good morning, Mark. Nice to be here.

Crociati: Thanks for being with us.

John, now tell us exactly what your job description is,
what exactly you do with IBM?

Patrick: Well, I get called a lot of different things. I guess I think of myself mostly as “chief dreamer,” thinking about the future of the Internet and the impact that it will have for all of us.

Crociati: Do you also consider a corporate future? We’ve had a gentleman by the name of (unintelligible) Mayland. He’s considered a corporate (unintelligible). Does that play a role in what you do?

Patrick: Oh, I suppose so, to some degree. I sometimes get asked, “What will the Internet be like in ten or twenty years?” And my answer is usually, “I have no idea.” But in terms of what the Internet’s going to be like over the next few years, I have quite a few ideas. And, frankly, I think anyone that says they are a futurist or a visionary and can tell you what the Internet will be like decades from now is only dreaming, because change occurs so rapidly, and there are so many disruptive technologies that have come along, I think, it’s quite difficult to predict.

However, I think over the next few years, it’s pretty easy to predict, and we all know, of course, the Internet’s going to get a lot faster. But we’ve been thinking quite a bit at IBM about some other characteristics that are quite important: for example, the Internet becoming always on and everywhere and natural and intelligent and easy and trusted. And some of those characteristics sum up what we call the next generation of the Internet, which is well under way right now.

Crociati: I suppose, although, maybe five or six years ago, it was much harder to predict where the Internet’s going and what it will do. At this point, you must have a viewpoint or advantage point in where the Internet is going to go, as opposed to five years ago.

Patrick: Oh, very much so, and specifically around us, the seven characteristics that I just mentioned. I personally expect the Internet to be extraordinarily fast, and it may not seem like a reasonable prediction if you’re using a slow modem today and sometimes having trouble getting connected at all, but the reality is that under the surface there is tremendous change going on with the speed of the Internet, and this is being driven both by technology and by competition.

Secondly, the Internet is going to be always on, and as a result of cable modems and DSL modems, people will just be connected all the time, and this will greatly change the propensity to use it.

And third, it’s going to be everywhere. Today, the Internet is not everywhere. Today, the Internet is where your PC is, but tomorrow–and tomorrow starts, like, right now–the Internet will be on your PDA, will be on your cell phone, it will be at a kiosk on a street corner, it will be on all kinds of information appliances that we expect to see large numbers of.

Crociati: That’s a popular belief right now. It’s another sort of trend or belief in the industry that there will be a lot of kiosks. You know, it’s like the old phone booths. Now we will have kiosks. But my question is, with these palm pilots and these different hand-held and head-held computer devices, will there actually be a need for kiosks?

Patrick: I don’t think there’s any question about it. The evolution of the Internet is really, in some respects, about a fairly significant transfer of power from institutions to people–power to the people. I’m not talking about anarchy, with people marching in the streets, of course; I’m talking about people having a choice. Some people will love to have this proliferation of all kinds of devices. You know, people who love gadgets will have multiples of these, but there are some people who either don’t want or can’t afford any device. Yet, because of the movement of the infrastructure of e-business for all kinds of companies and governments and educational institutions, people will have no choice but to use the Internet because that’s where the content’s going to be. And many of those people will find the kiosk to be quite convenient, and I expect to see them in churches and schools and government buildings, on the street corner, in airports, even on the plant floor–people taking a Web break instead of a smoke break.

Crociati: That’s a (unintelligible) too. I think instead–I certainly can vote for that, but looking at–one of the things that is interesting to note is seeing how these businesses survive, how they do on the Internet. You have, for instance, Egghead software that went solely on the Internet. They used to be brick and mortar; now they’re on the Internet. What about, for instance, E-toys? We dealt with E-toys over Christmas, and we had trouble getting some of the items that we ordered well in advance. There’s going to be some growing pains. Some of these businesses will work well over the Internet; some will not.

Where do you see that going, and how is that going to affect which company, do you belive, the best in the future? And what will the investor listening now look for to invest in? As well, of course, IBM.

Patrick: Well, for sure.

Well, I think that what’s going on here, again, is that people have the power, right, and that means they have the choice, and their expectations are rising very rapidly. And they will expect that companies will be able to offer good response time, good selection, and good integration with the physical world so that they can receive delivery of items that they might buy, and most importantly, terrific customer service. People will become aware of technology, such as instant messaging, for example. We have something at IBM called same-time, which is–which can enable a Web site to be able to have live chat sessions with customers that can also enable customer service representatives to take over control of your browser and help you find what you’re looking for on the Web site, so these kinds of technologies will find their way into many of these new businesses, and people will begin to expect it.

So, what companies do you invest in? I say, look for companies that do a terrific job of customer support and customer service. Those are the ones I believe will be successful, because remember, people have the choice and they will migrate to those places where they feel like their life is being made easier. So, time is being saved for them.

Crociati: And I fully agree with that. I think that the minds of most companies is based upon, more than anything, first and foremost, customer service; secondly, product. We’re seeing that with K-Mart. They’re having problems with acquiring employees, and the service is suffering, and of course, their sales have suffered over the years.

How does IBM provide the customer service? And what exactly is your role in the Internet, and how does it work in with IBM, and how will IBM benefit, its stock, particularly, through what the Internet will do for IBM, as well as IBM for the Internet?

Patrick: Well, IBM has a very simple strategy to… (tape cuts out) …the things we’ve been talking about, and that is to help our customers become e-businesses. The plan is not to be the IBM bank or the IBM insurance company, or the IBM mall, or… (tape cuts out) …things that we could be, but rather to help all of those kinds of companies, as well as the emerging e-market places, to help them become successful by being their technology partner. And I would say the thing that differentiates IBM from the many thousands of companies that are providing technology for the growth of the Internet is that we are the great integrator. We are the company that knows how to take the hardware, the software, the services, the consulting, the Linux capabilities, the education, the financing, the venture capital relationships–you know, all the pieces and put them together and make it real for our customer.

We’re a great partner, you know, and we work with companies ranging from the biggest in the world, to emerging new start-up–Internet start-up companies. And we provide them the technology and the services and support and help them become great e-businesses.

Crociati: And I imagine because the Internet has taken a lot of–even companies, off guard–I said one example, Microsoft, which was kind of taken off guard in regards to the browsers and Netscape and not really the full potential Internet. I mean, no one really realized the full potential of the Internet five or six years ago–just five or six years ago. Has IBM had to catch up with this as well as every other company in regards to how popular a (unintelligible) it has become?

Patrick: Well, frankly, we’ve been–we’ve been a leader on this. We coined the term “e-business” several years ago. We were talking about the Internet as a tool for business long before that was a popular thing to do. It was, in fact–our chairman often says it was a lonely place to talk about e-business back in the early days. And we are watching this market very carefully and trying to anticipate technological changes, trying to create technological changes–Linux, for example.

I would say over the past thirty years, there have been three really significant shifts that occurred. One was the PC in 1981; another was PCPIP (sp), the language of the Internet in 1991, roughly; and then, in 1999, Linux rearing its head. And in all three cases, we saw common things happen. One was venture capital moved into those areas. Two–we saw very smart people–thought leaders in the industry leave their jobs and go start new companies in those areas. Three–they were very grass-roots oriented. They were quite standards-oriented, and lastly, existing companies in each of those three cases said, “Who needs it?” Who needs PCs? We have mini computers or main frames. Who needs PCPIP? We have Detonet (sp) or Apple link or SNA. Who needs Linux? We have Solaris, or Windows. And now you have IBM out on the edge saying, “We all need Linux because it’s a real shift in where things are going.” And open-source software is for real. And so, you see us embracing Linux on all of our platforms from our smallest think pad, to our largest mainframe.

Crociati: And since you are a computer maker, where is that going? There is a belief indeed that the PC is a dinosaur already, and it’s on its way out. How–what sort of role are you going to play in that, and how are you going to change your mode of, basically, accessing the Internet (unintelligible) financial balancing of checkbooks and the software that you do on the PC now?

Patrick: Right. Well, first of all, the PC is not dead by any means. But the era of the PC as the center of the universe and as the central way to access the Internet– that era is over. And it is being subsumed by the era of pervasive computing, which includes all kinds of devices, ranging from PDAs and phones to kiosks and Internet radios, to other kinds of things. And IBM’s role there is to help create the standards and to provide technology to integrate all those wireless devices into the middle ware and infrastructure of e-businesses.

With regards to the PC, while the percentage of PCs as participants on the Internet will decline quite a bit because of pervasive computing, PCs will continue to grow. And at IBM, we’re very proud to think that, for example, which continues to be the strongest player in the laptop notebook submarket.

We just came out with a beautiful, new titanium-oriented machine. We have them in colors now, and it’s extraordinarily popular. Also, the Netfinity server– Intel-based server–is one of the hottest products in the industry right now for Internet service providers and companies building Web sites, and our new Netvista line of PCs has totally redefined what desktop PCs are all about and merge the great ideas of the think pads into a space- saving desktop that really sizzles. So, the PC business is very important and very strong.

Crociati: Will we need–and I know there’s been a race for it for a number of years now in regards to megahertz in computers. It’s very frustrating if you buy a computer: one year to the next year it’s already old. Will that need to have more speed slow down with the high speed access to the Internet?

Patrick: Well, it will for some people. The Internet begs a lot of questions of a binary nature. For example, will it be the network computer or will it be the personal computer? Answer: yes. Will it be the cell phone, or will it be the personal digital assistant? Answer: yes. Will it be the cable modem or DSL? Which will win? Yes, and on and on. The Internet is providing both centralization and decentralization at the same time. So, there are a lot of choices here, and some people will prefer to have a very thin device, which basically interacts with a wireless connection and utilizes the intelligence of the server somewhere in a building nearby. Other people would prefer to have as much horsepower as they can get because they want to crunch numbers or add very sophisticated user interactions–therefore, they want a very powerful PC.

And the nature of the technology will make all these choices not only costable but affordable, and I don’t see any slowing down of the pace.

Crociati: And that’s another question and has been a bone of contention–not to mention another (unintelligible) but Microsoft–and their fears that there will be no need for operating systems because (unintelligible). Will the Internet, do you believe, be one operating system? You did mention Linux, and will we be–just be able to share our software, for instance, if you want to do your taxes or something right over the Internet?

Patrick: Well, certainly, with the increased bandwidth in the last mile and the tremendous build-up of the backbone through deployment of fiberoptic cable. It will be possible to have many services be provided over the Internet, and many people will choose to do that. That will now, however, eliminate operating systems. If you look at major institutions like Charles Schwab, for example–running huge numbers of IBM Unix servers providing services over the Internet, where they’re trading customers. You’re not going to see that all disappear into some operating system in the sky somewhere back in the network.

Crociati: What about a retail–someone at home that accesses the Internet or some sort of operating on the Internet? Is that feasible, as opposed to a large corporate, such as Charles Schwab?

Patrick: It will be for some people. There will be people who will choose to have very little computing power–a person using Web TV, for example. It’s very little computing power. They’re essentially relying on power somewhere in the Internet. But again, it’s a matter of metrical varieties here, and it’s just like CDs or boom-boxes, or stereo equipment or automobiles. Different strokes for folks. You know, there’s not going to be one answer that says, “Well, we’re not going to have computers anymore. Everything’s going to be on the Internet.” We’re going to see a proliferation of devices, a proliferation of the ways in which people connect to the Internet and a proliferation of the matter in which we receive services, whether it’s locally or whether it’s through services that are hosted in the emerging application service providers.

IBM is providing technology, by the way, for all these approaches, and we’re helping our major customers sort out their strategies and figure out what are the optimal channels of distribution in the world of the Internet to help them optimize their business. And then we provide the technology to actually build those channels. And in many cases, we actually will operate the channels of distribution for our customers through outsourcing of their systems.

Crociati: Now real quick–we have a just a few minutes left–what are the reasons why–obviously, you know a lot of reasons–but immediately, why do you believe an investor should invest in IBM and take advantage, of course, of a number of different things that they’re participating in? Of course, we mentioned that as well, as a number of other technologies.

Patrick: The primary reason is that IBM is the–is the integrator. There are thousands of companies that have great little disk drives or great database software, or great this or great that, including IBM, by the way. But in terms of who knows how to put it in perspective for a company–you know, a customer that wants to reach out, take advantage of the Internet, wants to become an e-business– and by the way, what company would not want to do that? How do they make it real? How do they get an infrastructure that can scale? We’re only one or two percent of the way in to what the Internet will mean for all of us. We’re at the very beginning. Skill ability is a huge factor. Well, IBM knows a lot about skill building. We’re the company that knows how to make all the pieces, the servers, the think pads, the network, (unintelligible) service, put it all together and make it real for the customer, make it reliable and scalable.

Crociati: Tremendous. Thank you for being with us. Unfortunately, we’ve run out of time, John. Appreciate you being with us.

We’ve just been speaking with John Patrick. He’s the vice president of Internet technology with International Business Machines.