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TR: Going back to e-commerce: You stunned analysts a while back when you said most companies—including e-commerce companies-didn’t really understand e-commerce. Can you explain that?

GERSTNER: First, a couple of years ago, right in the middle of the so-called New Economy, and the near-hysteria over all the Internet startups coming to destroy the entrenched brand names in every industry, I raised a few eyebrows when I called the dot-coms “fireflies before the storm.” I said the real storm was going to hit when all those established businesses moved to exploit network technologies to reinvent their brands, customer relationships, supply chains and distribution systems. Well, that storm has arrived.

A year later, however, it seemed like we were lurching from dot-com hysteria to what I described as “dot-com alchemy.” It was unlike anything I’ve ever seen-a frantic attempt by some established businesses to pull off some kind of quick strike-to do something, anything, with the Internet just to show they were participating in the digital economy. What I was suggesting is that while the Net is a powerful vehicle for business transformation, it does not give anyone a free pass on basic business management-setting a solid strategy and implementing it well.

TR: So how would you characterize the New Economy?

GERSTNER: I resist the idea that there is a new economy-something that is separate and distinct from some other economy. Is the Internet, and is investment in information technology, driving a sustained period of economic expansion? Yes. But we have to be sure we understand the Internet is not killing off other technologies or industries, and it is not obsoleting all that came before it. The Internet is going to be remembered a lot like the way we see the impact of the electric motor today-first used in heavy industry, but eventually absorbed and adopted by every industry.

There’s been far too much emphasis on catchy ideas like this so-called New Economy, or new kinds of competitors, or new business life-forms. The enduring impact of this transformation isn’t going to be found in the meteoric rise of some new invention or business construct. It’s going to be about all the existing enterprises in the world figuring out how to win the battles inside their industries against their traditional competitors. That’s true whether we’re talking about pharmaceutical companies, manufacturers, financial services firms, universities competing for students or the best faculty, or governments competing for new investment.

TR: Related to this, can you say more on where you see IBM going in the next few years? What about 10 years down the road?

GERSTNER: Services is our fastest-growing business. We lead the industry on virtually any dimension you could pick. It’s a unique business, unlike any I’ve ever seen in terms of its ability to continually reinvent itself and generate new opportunities. We’re certainly seeing that now, with a whole new category of services developed expressly for e-business. That’s everything from huge demand for our strategic consulting and business innovation services, through Web design and hosting.

All that said, we’re not leaving behind our core businesses in computing infrastructure-servers, storage, networking and middleware-to morph into a services business. Look at the marketplace. E-business is driving an explosion in transactions, data flows and workloads. That drives huge requirements for a new generation of computing infrastructure to support e-business: more flexible, scalable, reliable, intelligent and self-managing. Building infrastructure-that’s our franchise.

The final point I’d make is that our customers don’t come to us as a product shop, or a “body” shop, or as a software business, or as a strategic consultancy, or as a research and development organization, though we’re all those things. Our customers bring us their most sophisticated business challenges, and they expect us to tailor information technology solutions drawn from a portfolio that spans high-end consulting to maintenance. They look to us to integrate the technologies with each other, and with their business strategies. This requires that we strengthen our leadership in both services and technology. That’s what we do.

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