Traditional hosted email has been a two horse race between International Business Machines‘ (NYSE:IBM) Lotus Notes and Microsoft Outlook hosted on Exchange. For organizations with 500 email seats and above, the latter had a mammoth market share of close to 75% as of 2011 while Lotus notes had less than 10%, according to Microsoft. The market shares were comparable in smaller sized organizations and all of this changed with the entry of Google’s Gmail hosted on the cloud. It was easier and cheaper for smaller organizations to implement Gmail and the market quickly went for the enterprise version of the successful email service. Google also quickly acquired market share because of its collaboration tools and a web-based Office-like suite with Google Docs. Microsoft was quick to adapt to the changing trend and introduced Microsoft Office 365, and the market is now again a two-horse race with Google and Microsoft contending for the top spot.
IBM is however gearing up to launch its own web-based documentation suite with IBM Docs as part of its Smart Cloud initiative. The service is currently available in the beta phase.
Will IBM Docs Help Its Lotus Notes Business?
The company will package a suite of social collaboration tools such as IBM SmartCloud for social business, IBM Connections social collaboration software, social analytics, and enterprise content management (ECM) along with its Lotus Notes offering. This is very likely to improve customer satisfaction and will also help it gain market share with enterprises looking to shift to cloud-based email services. IBM Docs plugs a key gap in the company’s business email and collaboration software product portfolio, and we expect the customers to adopt this service which should help the company avoid further market share loss at least in the near term.
Putting Lotus Notes In Perspective
We estimate that Lotus Notes contributes nearly half a billion dollars in revenue annually, which is a very small portion compared to $100 billion in total revenues, but considering that IBM has lost significant market share in this space, it could be a potential revenue driver if IBM Docs takes off.
With the market share data reported by Microsoft, we calculate that the market size of large enterprise email is upwards of $7 billion. This is just the market size of large institutional email and does not factor in small businesses and cloud clients. With cloud being the growth avenue, this quickly becomes a very large market, one which IBM cannot ignore considering that the brand recognition of Lotus Notes is still very strong.
We currently have a $230 Trefis price estimate for IBM which is about 20% higher than the current market price.