Remember Lotus Notes? It's Still a $1 Billion IBM Business

International Business Machines Corp.'s IBM +0.42%vaunted software portfolio includes applications to help companies crunch huge amounts of data and manage their online storefronts. It also includes programs like Lotus Notes.

"I go to a party, and I almost immediately get insulted," says Eugen Tarnow, a director of the consultancy Avalon Business Systems, which sells the aging email software to businesses. "They say, 'Lotus Notes, that's still around?' It's no fun."

Remember Lotus? When IBM paid $3.5 billion for the email pioneer in 1995, the deal was seen as a game-changer that plunged the hardware company more deeply into the higher-margin software market.
Now, it's a symbol of the challenges facing new Chief Executive Virginia "Ginni" Rometty as she tries to spur growth in a software division that accounted for nearly a quarter of IBM's revenue and more than 43% of its pretax profit in 2011.

IBM has spent billions of dollars on dozens of software acquisitions in recent years, which have helped the company deliver a flow of steady earnings. Still, much of its software revenue flows from technologies like Lotus that it acquired or developed at least a decade ago. The company needs to modernize its portfolio for a new technology era by selling more software aimed at fast growing areas like social media, cloud computing and mobile.

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