Race to set the standard: IBM's Lotus purchase is first volley in groupware war.

No one could accuse Louis V. Gerstner Jr., IBM's pugnacious new chairman and CEO, of lacking a historical perspective. When Gerstner engineered IBM'S uncharacteristically aggressive $3.5 billion cash buyout of Lotus Development in july, it was a scene reminiscent of the takeover-laden '80s, when junk bonds ruled the world and barbarians stormed the gate.

But '80s greed was not the driving force behind this deal. IBM's purchase of Lotus ended Big Blue's decade-long search for a signature product--a so-called killer application--that would allow it to set software industry standards and better compete with Microsoft for market share. IBM is betting that by acquiring Lotus Notes in the largest takeover bid in the history of the computer industry, it has secured itself a role in determining the future of computing. The point is clear: The rush is on for control of standards in a still-coagulating industry.

The Lotus Notes application allows computer users to share information over a local or wide-area network. Notes allows a company's employees to edit documents using a shared "work space," integrate graphics and send electronic mail--no matter which computer hardware platform or operating system is in use. This versatile software, a fast-emerging favorite in business circles, is called groupware.

Lotus Notes is rapidly becoming the standard among groupware products for small businesses. During the second quarter of this year, Lotus sold 330,000 Notes packages, double the figure of a year ago. While groupware competitors, such as Microsoft, continue to develop products for the future, Lotus Notes has captured more than 2 million users, an impressive 70% of the small but growing market.

IBM hopes that businesses will continue to embrace Lotus Notes as the definitive collaborative software in the market. In fact, Gerstner and many industry analysts believe that groupware is the next big business application that will change the way companies do business--much in the same fashion that Microsoft changed the business and home computer markets with MS-DOS and Windows.

Industry analysts expect IBM to use Lotus to turn the tables against Microsoft, which has beaten IBM to the punch on everything from operating systems to spreadsheets. Now for the first time, IBM has the upper hand in a computer software category--an advantage that may entice some small businesses to consider switching from Microsoft operating systems, such as Windows or Windows 95, and convert to IBM'S OS/2.

Industry insiders, however, don't see this happening in great numbers. Although OS/2 is a powerful operating system, it hasn't fared well competing with Windows. While 88% of all home computers and 50% of all businesses use Microsoft's Windows, only 10% of each market uses OS/2. In addition, Lotus Notes has competition on the horizon. Microsoft is developing Exchange, a groupware application that it believes will cut into Lotus Notes' market share soon after its release.

IBM is, however, aggressively positioning Lotus Notes. It has already launched a massive marketing campaign via the Internet to attract businesses that use networking software. It will also attempt to create a "mandate" in the market by bundling Lotus Notes with hardware systems from manufacturers such as Hewlett-packard, as well as including Lotus Notes with all IBM hardware systems. Such moves could make Lotus Notes cheaper for most businesses.

The overall intent is to entice business owners into the IBM camp. The company has set an extremely optimistic goal of 20 million Notes users by 1997. Will this strategy get the job done?

Stay tuned.