IBM Divests Notes, Domino in $1.8 Billion Sale to HCL

More than two decades after IBM acquired Lotus for $3.5 billion in a deal that gave it overnight leadership in email and collaboration, the company is parting ways with the Domino and Notes portfolio. IBM said it has reached an agreement to sell Domino and Notes, along with other related software products to HCL for $1.8 billion.

The move comes in wake of IBM’s recent agreement to acquire Red Hat Software for $34 billion, by far its biggest acquisition to date. Perhaps ironically, the 1995 deal to acquire Lotus was one of IBM’s largest at the time.

While Notes and Domino have long faded from prominence, along with boxed software sold by partners, the move is a sign of how times have changed. IBM is now divesting Lotus for half what it paid for it. But it underscores the company’s priority to focus on AI, hybrid cloud, security, analytics, blockchain and vertical industry software.

“We believe the time is right to divest these select collaboration, marketing and commerce software assets, which are increasingly delivered as standalone products,” said John Kelly, senior vice president of IBM’s cognitive solutions and research business, in a statement announcing the deal.  “At the same time, we believe these products are a strong strategic fit for HCL, and that HCL is well positioned to drive innovation and growth for their customers.”

The 1995 acquisition of Lotus was a key milestone in then-CEO Lou Gerstner’s effort to remake IBM into what it called an “e-business” company. At the time of the deal, Lotus was steeped in a highly visible competitive rivalry with Microsoft during the formative years of desktop email and the early days of electronic collaboration.

Acquiring Lotus, a brand retired years ago, was a new chance for IBM to take on Microsoft, who years earlier had left Big Blue at the altar with OS/2 after deciding to focus on Windows rather that stick with its partnership to jointly develop the desktop operating system. Providing email infrastructure was a key opportunity for channel partners and systems integrators to gain a foothold with customers, either building on their networking topologies at the time, or laying the groundwork for email-enabled applications.

Lotus was the leading provider of email software when IBM took ownership of it. While Notes was only a few years old, it was growing quickly and Lotus cc:Mail was already the most widely used email platform. But IBM’s first trouble with Lotus began just as the deal closed, when critics questioned whether the company made the wrong bet.

Both Notes and cc:Mail, as well as Microsoft Exchange, had their own APIs and messaging protocols, at a time when internet standards were starting to usurp proprietary software. While both companies ultimately jumped on the internet standards bandwagon and largely were able to keep challenges from Netscape and Novell at bay, IBM had deprecated cc:Mail and over time the vast Notes customer base and ecosystem shifted to Microsoft Exchange.

In its heyday, Lotus Notes was considered the preferred option by enterprises because of an architecture based on replication that provided more reliable and secure message handling. It also had a model that supported custom and third-party applications focused on a wide variety of tasks including office workflow automation, document management and interfaces to supported systems including intranet portals.

Microsoft responded with the development of SharePoint and ultimately as Exchange became more reliable and was easier to use, many organizations started migrating away from Notes and Domino. However, some organizations continue to run their existing Lotus infrastructures.

The two companies expect the deal to close in the middle of 2019, pending approvals. Along with Notes and Domino, IBM’s related tools going to HCL including Appscan, BigGix, Unica, Commerce and its Connections collaboration software.

“The products that we are acquiring are in a large growing market areas like security, marketing and commerce which are strategic segments for HCL,” C Vijayakumar, HCL’s president CEO, noted in a statement. “Many of these products are well regarded by clients and positioned in the top quadrant by industry analysts.”