I.B.M. Introducing Merlin, Its Latest OS/2 Software

I.B.M. Introducing Merlin, Its Latest OS/2 Software

By Laurence Zuckerman
The New York Times

September 25, 1996

I.B.M. plans today to introduce the latest version of its OS/2 software, code-named Merlin. But even I.B.M. executives concede that the new program lacks the legerdemain to make Windows, the much more popular software from the Microsoft Corporation, disappear.

Indeed, after spending millions on marketing and advertising in an unsuccessful attempt to go head to head with Microsoft two years ago, the International Business Machines Corporation now has much more modest expectations for OS/2, which, like Windows, controls the basic operations of a personal computer.

John W. Thompson, the I.B.M. general manager in charge of the software, implied in an interview last week that the company had little choice but to continue supporting OS/2 because I.B.M.'s most important business customers still use it. But the company has all but conceded that OS/2 will not compete for users in the consumer market.

OS/2's estimated 11 million users are a fraction of the 140 million users of Windows, according to the International Data Corporation of Framingham, Mass. But Mr. Thompson said that the 3,000 largest OS/2 customers, which include big banks and insurers, generate 25 to 30 percent of Big Blue's $72 billion in annual revenue, with purchases of other types of computers, services and software.

Mr. Thompson said he presented I.B.M.'s chairman and chief executive, Louis V. Gerstner, all the options concerning OS/2's future, including killing it, at a meeting this spring. The decision to continue supporting it was made, he said, because the company had made a commitment to its clients, many of whom spent a great deal to write custom programs that run on the software. "OS/2 is broader than just an operating system to the I.B.M. company," he said.

Since taking over management of the software division last year, Mr. Thompson has moved to cut expenses. He shelved efforts to develop a version of OS/2 to run on the Power PC microprocessor developed by I.B.M., Apple Computer and Motorola Inc. He also closed a development site in Boca Raton, Fla., moving 700 programmers to Austin, Tex.

Still, the cost of employing 1,500 programmers to update an operating system consigned to use by a small segment of the market is considerable, even for a company I.B.M.'s size.

The new version -- formally, OS/2 Warp Version 4 -- has a new look and is easier to use than its predecessor. Users can also operate the software and navigate the Internet by issuing voice commands instead of a keyboard or a mouse.

But there are relatively few off-the-shelf programs written specifically for OS/2. While OS/2 can run programs written for Windows 3.1, it does not support those written for Windows 95 or Windows NT, the latest versions from Microsoft.

I.B.M. has no plans to change that or to try to woo consumers, even though the new version retains the word Warp in its name -- a reference to the "Star Trek" television and film series borrowed by Big Blue's marketers in 1994 to appeal to a mass audience.

Instead, Mr. Thompson said, the company plans to attract business users by stressing the software's built-in support for the Java programming language, which many analysts say will become a staple of corporations and the Internet because it allows programs to be distributed over a network and run on a personal computer with any operating system.

Critics argued that the new strategy was a fig leaf intended to conceal that I.B.M. had given up on OS/2 and wanted to cut its losses. "You really have to look in the direction of divine intervention at this point to find a scenario where OS/2 doesn't dwindle away," said William F. Zachmann, president of Canopus Research, a consulting firm in Duxbury, Mass., and until recently one of the software's staunchest supporters.

But David Card, an International Data analyst, said the new strategy could succeed. "It makes sense," he said. "A year and a half ago, the strategy made no sense."

By focusing on a few key niches, like banking and insurance, and in select markets like Germany, I.B.M. could develop OS/2 into a small but profitable business, he said, adding, "They have a chance, but it will be very difficult to pull off."