Contact Editor-in-Chief John Gallant

IntraNet, 2/17/97

The company, which was acquired by IBM for $3.5 billion in mid-1995, has an opportunity to position its Notes groupware as a key component of corporate America's intranet. The risk is that customers will view intranets as an alternative to Notes.

As president of Lotus, Jeff Papows is working hard to make sure Lotus realizes the intranet opportunity and minimizes the risk. In this IntraView, Papows talks about how Notes, cc:Mail, Domino - Lotus' Web development technology - and applications like 1-2-3 play in the intranet world, and how Lotus can do a better job than Netscape Communications Corp. and Microsoft Corp. in leading you to the promised land.

Q. Shortly after IBM bought Lotus the talk began in earnest that the Internet and intranets would kill Notes, yet shipments of Notes' seats jumped by over 200% this year. What didn't the pundits understand that would explain that?

A. Those in the press who prematurely buried us missed two facts that we stressed when we announced the merger. First, there never was an adversarial relationship between Notes and the Internet. The sudden popularity of the Internet actually became a rocket for Notes to ride because the Internet is nothing more than a super network expansion of the client/server framework which we crafted Notes to work over. Our seven years of consistently improving collaborative computing for business put Notes and the Domino server in an enviable market position as the only viable, shipping products for collaboration over the Internet.

Second, those early obituaries usually cited IBM's less-than-stellar record of marketing software as a probable cause of death. But instead of literally taking us over, Lou Gerstner and John M. Thompson [IBM's top software executive] kept IBM's hands off Lotus operationally, particularly where our product development was concerned. Just take a look at next month's Lotusphere and you'll see the results of that autonomy with the backing of major capital resources and entree to the world's largest R&D complex.

The sum of those two points, which most didn't believe or understand, is that we've been able to deliver what we promised far ahead of even our own schedules, and we've now got the development muscle to lead the industry with collaborative computing products for the Internet and intranets. Notes' growth proves these points.

Q. What role do you see Notes playing in intranets?

A. Again, Notes was there before the term existed. We've been doing intranets for corporate customers for as long as Notes has been deployed. The very definition of intranets contains the basic functionality of groupware - AKA collaborative computing. Notes allows many to share and profit from information simultaneously, to track business processes automatically and to customize every company's intranet to whatever applications are most important to it. Notes even covers the latest jargon, extranets, since it doesn't matter whether members of the enterprise are behind their desks and the firewall, or in a Motel 6 in Alaska.

Q. Same question for Domino. What role do you see it playing in intranets?

A. With Domino, we've really expanded the role of intranets. Customers can extend the reach and features of a Notes environment to browser users without risking the security found in Notes.??? And beyond that, Domino is a springboard for developers. The family of Domino.Apps will give them frameworks for easily constructing end-user applications for Web commerce, publishing and interactivity.

Q. What about the branding of Notes and Domino? Are you trying to create a new, non-Notes life for Domino as its own product in the intranet/Internet space?

A. We realized earlier this year that we needed a brand for our Internet server that did not correlate only to the client that we offer. That's what Domino is. It's not just for users with a Notes client.

Q. Netscape and Microsoft have also set their sights on this intranet space. How does your intranet strategy differ from theirs?

A. Simply put, we've got a complete product that's shipping, while they're selling do-it-yourself kits consisting mostly of vaporware and borrowed technologies. Customers need technology that will solve their problems, not create new ones. But, as far as I can tell, both Netscape and Microsoft are piecing together crazy quilts of different elements for customers to cobble together as intranets, if they're lucky, and many of the pieces won't be ready for another year or so.

I think it's reasonable for customers to question whether Netscape will be a company they want to do business with by the time these products are shipping. Meanwhile, our strategy is to continue to give the market what it wants, and to expand our marketshare in the process.

Q. Be honest, what are your weaknesses in this intranet market?

A. Our one weakness is the perception that Lotus is either a vendor of proprietary software or a creature of IBM with all the baggage that entails in the minds of some. We're doing a lot to counter that, not the least of which is developing and selling products for the Internet that conform to all of the major open standards, including HTTP, Java, SSL, IIOP, LDAP, POP3, SMTP, and IMAP4. And with the help of magazines like Network World, we're getting out the word clearly that Lotus is still Lotus, but with a very deep-pocketed benefactor.

Q. Lotus has always been a bitter rival to Microsoft, but up until recently IBM/Lotus has had a fairly close relationship with Netscape. Things seem to be getting a bit tense between IBM/Lotus and Netscape now that Netscape is really targeting this intranet market with messaging and groupware products, so tell us what the relationship is these days.

A. As we close out 1996, it's very much a three horse race for the Internet server market. And the horses are Domino, [Microsoft's Internet Information Server] IIS and [Netscape's] SuiteSpot. While we recognize Netscape's right to compete in our market, Netscape's entry into the groupware and messaging space has not been characterized by strong offerings - in fact they aren't offering any groupware or messaging products at all. Instead, they are attempting to freeze the market with unreleased products and, more important, misrepresentations of Lotus products.

For example, Netscape says it has 80% of the Web browser and server software markets and claims 92 of the Fortune 100 as intranet customers. In reality, Netscape is still very much a browser company. As reported in its latest SEC 10Q filing, Netscape still earns over 70% of its product revenues from browser software it oddly claims won't exist. According to the Netcraft Web Server Survey of over 600,000 Web sites, Netscape holds only 13% of the Internet server market. Netscape's intranet claims include corporations that have Netscape servers anywhere in the organization; that's very different than adopting Netscape as a platform.

Growth in either area will be difficult; in its SEC 10-K/ A filing, Netscape warns that it ''expects competition to persist, intensify and increase in the future. Many of the [Netscape's] current and potential competitors have longer operating histories, larger installed customer bases and significantly greater financial, technical, marketing, public relations and distribution resources than [Netscape]. Such competition could materially adversely affect [Netscape's] business, operating results or financial condition." This is in Netscape's own words, and by the way, I couldn't agree more.

Q. What do you think are the key issues customers ought to be focusing on in building their intranets?

A. Interactive workflow, security and openness. I see too many corporate intranets that are still being set up and embellished as little more than static publishing sites. But what really makes an intranet valuable is the ability for users within and beyond the enterprise walls to initiate actions over the intranet and actually get things done quickly and cost-effectively.

That requires interactive work flow applications with an extremely high level of proven security. And, cliched as it has become, they still have to focus on open standards - not those pushed by any one vendor, but those standards that are evolving around the world and are endorsed by non-partisan international standards bodies.

Q. What's the message from Lou Gerstner to your company regarding intranets? What does he expect of you?

A. The primary message is to keep doing what we're doing: developing future generations of the world's best Web-centric collaborative business productivity software. Lou and John Thompson are extremely customer-focused. As a result, we are focused on providing customers worldwide with the best means to rapidly and securely share valuable data over the least costly network structures possible, and that spells intranets.

Q. On the messaging front, how does a traditional mail product like cc:Mail fit into this new world of Internet messaging technology and standards? What do you see as challenges ahead in that messaging area?

A. Different segments of the market have different needs at different times. There are still a large number of organizations that don't have an overwhelming business need for enterprise-wide groupware and intranets. But they do have a major need for Internet standard-based E-mail with simplified yet secure Internet access. For them, we continue to expand a very successful product, Lotus cc:Mail, as well as the lesser known, but equally valuable, multivendor messaging connectivity technologies from our Soft-Switch subsidiary.

The primary challenge for messaging companies is to make certain that their offerings conform to the world's standards and allow interconnectivity with other messaging technologies. Without that, there's little hope that their customers will be able to benefit from the networked society beyond their corporate perimeters.

Q. Do you see any of the Internet mail companies like Ipswitch and Software.com having a big impact on the messaging market?

A. For some time, a few vendors have led the messaging industry, mostly because messaging is recognized as a mission-critical application. Organizations using E-mail want to be sure their vendor is large enough to support their mail systems around the clock, worldwide. If anything, the adoption of Internet-based messaging protocols has reinforced this trend. While most organizations want their messaging systems based on industry-standard protocols for interoperability, they also want rich functionality to leverage for competitive advantage. The larger vendors have the resources to deliver this differentiation and to help ensure interoperability.

Q. How does the shift to Internet messaging change the competition between Lotus and Microsoft?

A. While the Internet has driven major messaging growth, it's been even more powerful at underscoring the value of business process applications with high ROIs like those delivered by Domino. We've been fortunate in being able to move rapidly to adapt Notes to the Internet. But as the magazine reviews comparing Exchange and Notes have reported, it's been quite another challenge for Microsoft to graft groupware functionality onto a proprietary messaging system. On another front, users of desktop productivity applications increasingly look for built-in group collaboration features. The team computing functionality of Lotus SmartSuite not only uses concepts from Lotus Notes but provides a degree of Internet integration over and above any competitors' offerings.

Q. How do you see messaging changing in the corporate intranet environment?

A. The main issues for customers are achieving ever-richer functionality while ensuring their systems are standards based. Most organizations want more than a lowest-common denominator-based mail system. The challenge is getting the value-added functionality while not compromising interoperability - either with their own or others' messaging systems.

Q. How does Softswitch play into your overall intranet/Internet strategy?

A. The Internet is causing a tremendous growth in E-mail traffic - in numbers of messages as well as their size. In the last 12 months, commercial Web sites alone increased almost ten-fold - from 23,000 to nearly 220,000. Meanwhile, IBM databases manage an estimated 70% of the world's business information and IBM transaction processing software handles more than 20 billion business transactions per day in customer locations. That's business our customers want to move to the Net.

Soft-Switch provides the industry's leading solutions for connecting different electronic messaging systems - more than 70 in all. More than three-fourths of the Fortune 500 base their messaging infrastructures on the Lotus Messaging Switch and Soft-Switch Central.

As our customers use the 'Net to connect to their customers, business partners and information resources, they tell us the dominant issues are solutions, scale and reliability. We see the future of messaging integration being Internet standards-based switches running on very large-scale systems. Along with this comes a high level of services on an as-needed basis, from planning and implementation to operational support - not just a packaged software solution.

Q. What is your directory strategy and how is it better than Microsoft 's or Netscape's?

A. There are three parts to our strategy for providing and supporting directory services. First, we're providing enough flexibility and modularity in our products to give customers choices as to where and how they wish to integrate Domino and/or cc:Mail into their heterogeneous directory architectures. Second, customers can choose to use Lotus products to build directory infrastructures. And finally, we have committed to supporting Internet standards for directories - LDAP in particular. We don't ask customers to make our products the center of their directory universe. They want interoperability and co-existence among heterogeneous directory systems, and we're committed to giving it to them.

Q. Lest we forget desktop applications and suites, how do you see that market and those products evolving in light of intranets and Java? How will people use 1-2-3 in an intranet world of the future?

A. SmartSuite and Lotus Components, our business productivity applications, are as vital to our strategy of business-enabling the Internet as are Domino and Notes. With analyst projections of more than 160 million people connected to the Internet by the year 2000 , the connected world is becoming a reality. What that world needs is a new set of Internet-integrated, interactive and collaborative productivity tools.

As businesses decide how to take advantage of the Internet's connectivity to partners, customers and prospects, we have a dual strategy: continue to evolve SmartSuite to accommodate the demands of conventional users, who want simple, effective access to the Internet directly from within their traditional applications, and develop Lotus Components to provide Web developers with essential building-blocks to easily develop interactive, line-of-business applications for the Internet.

With our Java-based Components, Web developers will be able to incorporate business productivity applets such as spreadsheets, charts and diagrams in their applications to build powerful, interactive Web applications using any Web server or Lotus' Domino Web platform.

For users, Lotus Components represent fast, task-focused, easy-to-access business productivity applets for use within Web-based applications, or on an adhoc basis.

Q. What have been your disappointments in the past year? Successes?

A. Fortunately, the disappointment list is much shorter than the successes. Like any president, I would have liked to see our numbers exceed our plans at an even higher rate than they did. But the only real disappointment was that Mike Zisman and I weren't able to continue sharing the presidency of Lotus. Mike's tragic loss of his wife in August and increased parental responsibilities are, of course, the reasons behind his decision to change his role at Lotus and become Executive Vice President of Strategy, which is an extension of his prior role.

In the success column, there's obviously the continued smooth transition of Lotus into IBM with a major enhancement of Lotus' standing in the marketplace. That was the result of 200%+ Notes growth, nearly triple the marketshare for SmartSuite, the successful launch of the world's first collaborative Internet server, Domino, the double-digit growth of Lotus Consulting and Services, and the tremendous number of industry accolades we've earned for taking the lead in commercial Internet development.

It's been a fantastic year for Lotus that puts us in a very strong position for even further achievements in '97.

Q. How will your strategy and tactics differ from Mike Zisman's?

A. As his new title suggests, Mike is still a driving force in setting strategy at Lotus. In that sense, I did not take over from him. Let's just say there's a lot of continuity between his old job and his new job. And, since I had responsibilities for all operations since the merger, my role has not really changed that much. The only major change now is that I get the lion's share of frequent flyer miles.

Q. On a lighter note, what's this Howard Stern/IBM/Notes connection?

A. Howard discovered Lotus Notes on his own several years ago, and talks about it on-air a lot. He loves it! He's the only one I know who can make "replication" sound sexually alluring. As far as the IBM side of things, he's told callers in graphic terms that he's not compensated for the endorsements and hasn't communicated with anyone there or here at all. That's probably why he hasn't responded to my invitation to speak at Lotusphere.

Prolifics: (201) 343-3255.