Steve who? His name might not ring a bell, but he is the most important software guy you never heard of. If the division he runs were to be an independent company it would be the second largest software company in the world after Microsoft. He was selling computers when Bill Gates was still at Harvard and employs the largest selling force in software.

Meet 52-year-old Steven Alan Mills, Senior Vice President and Group Executive, Software Group, IBM. Mills, a 29-year-old veteran of IBM, runs its $14-billion software division. (To get a perspective, Mills' software division is nearly 20 times the size of Infosys).

Eleven out of those 14 billion dollars come from Middleware, which forms the guts of 'corporate computing'. (Middleware is the software that sits between the operating system, which talks to the machine and applications, which talk to the end user. Incidentally, IBM is not present in the applications software segment). Predictably, Steve's second moniker is ''King of Middleware".

Almost everyone knows about the success of IBM's services strategy. The services segment kicked in 45 per cent of the overall revenue and 32 per cent of the profits; Mills' software division accounts for a mere 16 per cent of the turnover, but contributes 37 per cent of the company's profits. Simply put, the man runs the most profitable division of the $81 billion company. BT's Venkatesha Babu met with Mills during the latter's recent visit to India. Excerpts from the interview:

What is IBM's software strategy?

IBM's software division is focused on two areas: middleware technology and operating systems. We have operating systems that are specific to our hardware platforms.

It is in Middleware, which sits under the application and on top of the hardware and operating system, that we are the largest player. Middleware manages the computing environment. It provides scalability and robustness for individual applications; it provides integration across applications. Middleware is important because businesses are thinking more about how they connect horizontally-to customers, employees, and suppliers. We ensure that these are done in a seamless fashion through our technologies.

Software defines a customer's environment and, therefore, it is strategically important. We increasingly find that when we get our leg into the customer's door through selling our software, we sell more hardware, more services and ensure repeat business.

The competition claims that software, for IBM, is just an engine for the company's services business...

One expects competitors to say nasty things about you (laughs). Otherwise, they would not be our competitors; they would be our partners, right? It is the way the world works. They say these things to get an advantage in the marketplace. The reality is that over the last eight years we have built the world's largest software sales force. This is bigger than Oracle's, bigger than Microsoft's. We would not have that big a sales force if we did not believe software was one of our core businesses.

Services is a separate business. Obviously, as we are part of a single company we help each other out. But to believe that we are in software to sell our services is really kind of silly.

A raft of acquisitions in the last year- seven in all including that of Rational, Trellisoft, MetaMerge, Holosfx, and Access 360-has fuelled growth in the software division. Will this trend continue?

First, let me say that more of our growth has come organically than through acquisitions. But acquisitions have played an important role in building the business in terms of acquiring both technology skills and customers. (But) Actually we do more partnering than buying. We cannot buy everybody. We are selective in our acquisitions based on technology and cultural fit. Yes, we did more than the usual number last year. We have not announced any in 2003, but it is a part of our strategy to keep scanning the market place for good acquisitions.

The idea of an acquisition should be to get more growth than before for those units also. For instance, Rational (a seller of development tools) has been growing at a much faster clip after the acquisition by IBM. I want to make acquisitions that are complementary and drive organic growth in the long run.

Fine, IBM's software is a natural fit for large corporations, but what are you doing to address mid-sized and small enterprises?

Our software is not designed uniquely for large business. Of course, we have been very successful in selling our software to large businesses. But its packaging, pricing, integration and usability allows the software to be used by mid-sized companies too. We are not focused on very small businesses. As a rule of thumb, companies that have 100 employees or more would be a logical target for the kind of sophisticated software we make and sell.

"It is a part of our strategy to keep scanning the market for acquisitions. The idea is to get more growth for the acquired unit as well"

In fact, our mid-market growth rates are faster than our high-end growth rates. We have specific packaging and pricing initiatives to address the mid-market segment. In fact, price has never been the issue. For instance, our Websphere 'Express' programme's (Websphere is an application server programme that shuttles data between business applications and the web) prices have been equal to or lower than Microsoft's software.

In fact, IBM sells more middleware software based on Microsoft's platform than even Microsoft does. Almost $2.5 billion of last year's revenues came from software sold on Windows. We are not anti-Windows. We do compete with Microsoft for the stack above Windows, but the Windows environment is just a part of the picture that is our larger strategy.

Microsoft is making an aggressive play in the enterprise software market, leveraging its operating system software strengths. How do you perceive this threat?

Microsoft's business is heavily dominated by Windows and Office applications. Microsoft is more of a mid-market player, whereas we address the entire spectrum. Go to any customer today. His mission critical applications will be running on mainframes; you will find them running on large Unix processors. You will not find them running on Windows. Our portfolio is quite wide. Websphere, for instance, is for commerce capabilities; db2 is our database application; Tivoli is for network management; Lotus is for collaboration; and Rational for development tools. We believe that we have the largest software portfolio in the marketplace today.

Microsoft, of course, talks about addressing the requirements of medium- and large-businesses, but right now it does not have the ability to satisfy many of the requirements, robustness and scalability required by them. Microsoft is a one-platform company.

IBM is famous for its buzzwords. Tell us what the newest set, autonomic computing, grid computing and on-demand computing mean.

First, let me deal with on demand. It is a statement of business. It is part of our endeavour to enable our customers to take advantage of the latest technologies and be able to do that without billions in investment dollars. This becomes possible with our middleware technologies.

Customers need to be able to say, "Wait a minute; we are moving away from this pipe-like structure and want the business to work in a more automated structure." And systems need to be more sophisticated in the way they manage resources. That is where the notion of autonomic computing comes in.

Grid computing is a low-level infrastructure capability. We offer a number of ways in which a customer can more flexibly manage his infrastructure to provide better end results. For instance, at a basic level our servers have the capability to divide themselves and customers need only pay for the capacity they use. In a way, this supports the on-demand theme. We add more value than any other vendor does for the simple reason we not only have all the technologies-hardware, software and the ability to integrate all of these in the form of services-but also consultative capabilities.

One of the interesting aspects of on-demand is that as businesses connect better and leverage open standards and become seamless about work and process flow, options open up for substituting in-house services with outsourced services. This well-executed flow enables you to connect to a process outsourcer who has superior skills, economies of scale and efficiency in execution. This is what India is leveraging in terms of its outsourcing abilities. Business process outsourcing would not have been possible without good connection and integration.

Since $11 billion out of the $14 billion revenues of the software division comes from middleware, how do you see the market evolving here. Who is your biggest competitor? Sun, Microsoft, Oracle?

If one were to divide the software market in a simplistic way, it would be os, Applications and Middleware. The Applications part of the market is the largest piece and we are not present there. The very fact that we are such a large player despite that should give you an idea of how big we are in the other two.

In Middleware, which is the biggest chunk of our business, we are the largest followed by Oracle and then Microsoft. There is no one single company which is our main threat, and there are lots of players in different segments of the market.

We battle with Microsoft in the messaging and collaboration software market, with Oracle in Database, with BMC and ca in network and systems management, and with BEA in the application server market.

Our primary focus is on the customer and not on the competition. We believe that if we deliver superior capability and customer satisfaction, the customer will keep buying from us. The way to beat competition is to win the customer. Our view is that we win if the customer wins.

What is Big Blue doing to win the battle for the minds of software developers in India (India has 8 per cent of the global software development community)?

You win the hearts and minds of developers by winning the hearts and minds of business people and the companies that they lead. If you are an Indian software company providing services abroad, your first concern is to know whether you have the skills to execute the contract on the systems and platforms being used by the customer. Preferences of buyers of technology thus play a great role. Our aim is to influence them and be a market maker. We feel that through our partners we will be able to woo the Indian developer community.

We have relationships with the major integrators here-be it TCS, Infosys or Wipro. We help them build their skills. A significant portion of their revenue comes from technologies in and around IBM products.

What is the latest chapter on Linux (IBM has just announced that it is planning to set up a Linux development centre in Karnataka)?

The Linux thrust is not new for IBM. Our activities date back to 1998. We are interested in this primarily because of flexibility and open architecture. Linux allows customers to start small and then scale up allowing flexibility and portability. It provides portability and freedom of movement and action to customers. This helps customers, as they are not locked into one system. Microsoft wants application to be locked into Windows. Oracle feels the same for its database. This provides customers with choice and the fact that Linux is extremely stable and can run mission critical applications. For instance, NYSE runs on Linux servers. What could be more critical? (Smiles).

What is the IBM India software centre working on?

The software lab in India is unique as it covers all the five brands that IBM has in the software division. We are building expertise here in areas like electronic data interchange and networks popular in the retail industry. India forms a very important link both as a market and a resource base for IBM globally. This is not just a statement. The fact that Sam (Palmisano) was here; (the fact that) I am here, underscores the fact. That India is a fast growing economy in a very difficult period makes it all the more attractive for us to be here.