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Get ready for the game of Gates v. Gerstner.

But to win this software battle royal, IBM Corp. Chairman Louis Gerstner must excel in execution. That's not likely.

And to lose, Microsoft Corp. Chairman Bill Gates must flop in execution. That's not likely.

Mr. Gerstner made IBM a potential contender in PC software this month with his $3.5 billion deal to swallow Lotus Development Corp. Still, he must overcome serious obstacles.

"IBM does not know how to manage its way out of a paper bag, at least in the software business," said David Coursey, editor of P.C. Letter. Big Blue's takeover of troubled Lotus "doesn't change the unending rise of Microsoft."

But now is the time to take on Mr. Gates. Regulators have Microsoft under a microscope, concerned that past successes in operating systems and software applications could give new ventures like the Microsoft Network online service an unfair advantage. That scrutiny won't stop even though the U.S. Appeals Court in Washington, D.C., Friday reinstated a limited year-old antitrust settlement worked out between Microsoft and the Justice Department.

Windows 95, the new operating system due in August, and MSN, also appearing then, will have a hard time living up to their hype. As Microsoft copes with glitches, regulators and PR troubles, rivals get an extra chance to flaunt products.

In the end, Mr. Gates probably will win most of these battles. Microsoft has a history of eventually turning products into hits even if it misses on the first few swings.

Prospects for Mr. Gerstner in PC software are mixed. IBM's estimated $50 million global ad blitz last fall for the also-ran OS/2 shows bold marketing-for the wrong product. Mr. Gerstner, meanwhile, last week said the Lotus buyout "has absolutely nothing to do with OS/2," hurting that product by leaving the impression it was now a lower priority.

Lotus, focused on the business market, is a fine strategic fit for a business-oriented marketer like IBM. Microsoft, in contrast, is moving fast into the booming consumer market, where IBM remains a minor software player.

To clinch the Lotus deal, Mr. Gerstner proffered great autonomy. As expected (AA, June 12), Lotus will keep Hill, Holliday, Connors, Cosmopulos, Boston, as agency on its estimated $30 million U.S. account, said Grant Schneider, director of marketing communications. McCann-Erickson Worldwide is likely to keep the estimated $15 million Lotus account outside the U.S., though IBM-owned Lotus could conflict with McCann's AT&T business.

Hill Holliday is respected in computer circles for its Lotus creative. But letting Lotus keep its agency may not sit well with executives at IBM units that a year ago were forced to sever ties with 80-odd agencies globally and go with Mr. Gerstner's choice, Ogilvy & Mather Worldwide, New York.

In any event, Mr. Schneider expects more money from IBM to advertise Lotus' hot product, the Notes software that allows PC users at different sites to work together.

Mr. Gerstner must find ways to get IBM and Lotus "Working together," as the Lotus ad slogan goes, to boost software sales and justify the takeover. IBM's PC division likely will bundle Lotus software at the factory, while IBM's sales army will push Notes.

In contrast to Microsoft's aborted deal to buy high-flying Intuit, IBM is buying an ailing software company-and retaining a controversial CEO, Jim Manzi. The domineering Mr. Manzi has churned at least a dozen top marketing executives during his decadelong reign, turning out marketing executives faster than Lotus turns out new spreadsheets.

Mr. Gerstner faces an artful management task to mesh Lotus-land with Big Blue and power up Notes in the next year before Mr. Gates releases a rival product.

The battle of Gates v. Gerstner is a curious matchup.

Mr. Gerstner, 53, is the suave ex-McKinsey consultant, former American Express Co. president and ex-RJR Nabisco chairman recruited two years ago to fix the world's biggest computer hardware and software marketer. After slashing jobs and enjoying a surprise rebound in mainframe sales, Mr. Gerstner steered Big Blue back into the black last year. He was named 1994 Business Marketer of the Year by Advertising Age's Business Marketing. But moves to slash secretaries' pay and send office workers onto shifts in the PC factory have damaged morale. IBM paid Mr. Gerstner $4.6 million last year to run the $64 billion company. IBM employs a six-figure executive chef to serve the chief.

Mr. Gates, 39, Ad Age's 1994 Marketer of the Year, is the visionary behind the world's largest PC software company. His nerdy facade masks a CEO with diverse management skills. Mr. Gates is the richest American, worth more than $10 billion, much of that owed to the strategic fumbles of IBM. Microsoft last year paid Mr. Gates just $457,545 to run the $4.7 billion company. He eats Big Macs and flies coach.

There are similarities. Both CEOs have upped the stakes in computer marketing, with Mr. Gerstner's massive corporate campaign and OS/2 assault and Mr. Gates' $100 million global branding effort, from Wieden & Kennedy, Portland, Ore.

For months, however, rumors have circulated about alleged dissatisfaction at Microsoft with Wieden's early work, and more recently there have been reports Microsoft may look at other agencies.

The rumors are forcefully denied by Greg Perlot, Microsoft director of advertising.

Mr. Perlot said Microsoft is pleased with Wieden's initial advertising. "We're learning together," he said. "We're very happy with where we started, where we've come and where we're going."

Joe Mullich, Jan Jaben and Iris Cohen Selinger contributed to this story.

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