Steve Mills, the senior vice president and group executive for IBM's software business since July 2000, explained the goals of the IBM-Google relationship to Network World’s Jon Brodkin in an interview this week at IBM's New York City offices.

Mills also discussed new opportunities in China, software-as-a-service's impact on the IT market, and the pros and cons of IBM's diversified software portfolio.

IBM teamed up with Google last October for a cloud computing initiative that, in IBM's words, will promote open standards and new software methods "that will drive the growth of the next generation of the Internet." What exactly are you attempting to achieve?

Let's try to put a little definition around some of this. Broadly defined, this internet cloud we connect to has a certain set of attributes related to the way in which applications get scattered across it and the way we access them. Google certainly is one of those companies that people identify within the context of the internet. They deliver a largely stateless environment to people.

The question is whether this highly dynamic type of deployment environment can be made richer, more manageable, and [whether] more significant application capability can be dynamically scheduled. Besides having to maintain the state of someone's transaction or activity, you have to persist their data. And finally, you [have to] flexibly schedule those resources to get some of the attributes of this highly dynamic Google-like environment and still ensure you're running things the way you want to run it, which is typical of the corporate datacentre environment.

So how will you achieve this merger of internet and corporate computing capabilities?

Obviously you've got to catalogue your configurations with greater care. You have to have a comprehensive picture of your resources so you think about how much storage is required, how much network connection is required, how much compute is required. You have to think about these characteristics of what you're deploying the application to with greater specificity because the application doesn't really lend itself to being broken up and spread. It needs to have a place to go, and if it's going to perform, its data has to be close to it. That's what you deal with in the enterprise world.

Google doesn't worry about that as much. They cache things to speed up performance, but nothing is very permanent.

In the enterprise computing environment you have to make sure you're maintaining the integrity of the data. You therefore have to have a very finite set of scheduling rules, you have to know exactly which resources you're allocating to that application, you have to maintain application integrity. At the same time I want to be able to use the resources to the fullest advantage, which means I'd like to schedule applications on an as-needed basis and push them to the background when they're not being utilised to the same degree – somewhat analogous to the Google model where this is the hot topic that's hitting the web but then it dissipates.

Everyone wants to know about Britney Spears last week, but only half the number of people care about her this week. Or people have totally forgotten about Britney Spears, in which case you no longer have to cache any data about her.

In the corporate processing world that's not the case. [My applications] run for years and years, but I have rising and falling capacity needs and requirements. Can I dynamically schedule all of this, if you will, into the processing cloud? Can I maximize the value of the physical assets and resources to a greater degree by capturing some of the dynamic characteristics one would see in a Google environment and yet have the integrity characteristics and certainty characteristics of the typical corporate data center?

That is the concept: How do you apply cloud attributes to corporate computing.

How extensive will your partnership with Google become?

It's hard to predict where these things go. We each make money in different ways. Everyone wants to write about the things Google could do in the future, and that creates this aura of the Google possibilities. But as we all know the business is nearly 100% grounded in the core advertising revenue-generating model, and many of the incremental services and capabilities they're rolling out are geared more toward the consumer than the business buyer.

These kinds of dynamic scheduling of business applications is something where IBM technology can be brought to bear in the context of Google's infrastructure to potentially give them more leverage on where they want to take Google. We look at Google as a customer in this sense, they're a potential customer for our technology. If they build up a more significant delivery capability into businesses, especially small businesses, there might be a business opportunity there for us to work together.

Is Google as a competitor, with its focus on making life easier for end users, also having an impact on how you do business and develop software?

No, because I don't run into Google as a competitor. The business model is a very different model. We don't engage in any conflict with Google in the marketplace on a day-to-day basis. Nor for that matter do we have any conflict with Yahoo or even MSN for that matter. Now what they deliver on those platforms, potentially in the longer-term view, might have some relative conflict.

You talk about changing the Internet. How is it going to be different for the average user?

The average user is obviously going to be paying attention to what's possible on the Internet, what kind of application services are available, how much more reliable and secure that environment becomes for your data and information. I think everybody is excited about the Web 2.0 and mashup capabilities. This idea that an application doesn't have to exist in one place, but can be a composite of multiple pieces coming from multiple places, is a very powerful model facilitated by Web 2.0.

Are the speed and performance limitations of the Internet the main problems you're trying to solve?

To some extent. All these fancy techniques, all the visual composition, feeds arriving from different places, only makes sense in the context of performance. I could have done it 10 years ago. But would it have performed for anybody? No.

Is the growing popularity of software as a service impacting your own development of software?

Software-as-a-service is a tiny subset of the business process outsourcing market. There are companies who have declared themselves to be software-as-a-service companies and companies that have declared themselves to be process execution companies. Sometimes you can't tell the difference between the two. I think often it has to do with whether there is significant venture capital behind the company as to whether you call it software-as-a-service or something else. If you have more venture capital, you're software-as-a-service. It's more exciting to be called software-as-a-service and more mysterious.

Does the software-as-a-service trend pose any challenges to IBM?

It provides a challenge to us in the context of who our customer is shifting. Not wholesale, but it continues to move. It moves to a process outsourcer, who then becomes our customer in effect. We need to know who those customers are. Our challenge is to track what's happening and go out and sell our products to them. They're clearly taking the place of what might have been a traditional customer we had been selling to that no longer needs software and hardware to do that job.

Is IBM planning any new software-as-a-service products or acquisitions?

IBM has a set of process outsourcing services [Applications on Demand] today, with some aspects of financial management and supply chain. We bought a company by the name of WebDialogs that delivers [Web conferencing] and incorporated it into our Sametime unified communications offering. These are the kinds of things we are doing and will likely do more of them as we see the market evolve and where customers seem to be most interested in alternative platform-delivered models of getting at function.

In what other areas might you make acquisitions or roll out major research projects?

We're spending over $3 billion a year in R&D so you'll see a lot of stuff. Our acquisitions have been scattered across the major elements of our portfolio. That will continue to be the case. It could be applications development, systems management, systems administration, security, transaction processing, process integration, obviously the whole Information on Demand strategy, which is multiple elements of technology.

IBM's software group just announced some revenue increases with Lotus, information management, Tivoli, WebSphere and other products. What's been driving this growth?

We're a $20 billion software business, so in order for it to grow the whole thing has to lift. We don't have the luxury of focusing on one area and not others. It is the world's largest software portfolio. We're not as big as Microsoft as a software company, but our portfolio is substantially larger. We don't get the kind of money from a single product like Windows as they do. Windows and Office fuel a huge amount of revenue and profit for Microsoft. We don't have those franchises.

Isn't it an advantage to be more diversified, or would you rather rely on a huge cash cow like Windows?

Diversity is generally viewed as an advantage. We think it is. On the other hand, having a monopoly has its advantages too. What more could you say? They make an enormous amount of money on Office and Windows. They have a very low cost of sales, relatively modest amount of development. It's enormously profitable. And that's the characteristic of a monopoly, which you're allowed to have. You're just not allowed to abuse them.

IBM plans to establish a cloud computing center for software companies in China. What is driving your emphasis in that part of the world?

The market in China is advancing quickly. It's a double-digit growth technology market. You have a lot of businesses there looking at new models and innovative ideas.

Obviously it's a market that's not as mature as the G8 country markets. But it's on a rocket in terms of how they're working to leapfrog, therefore there's a lot of opportunity and a lot of interesting project work.

Are you having your biggest growth in China right now?

It's certainly one of our fastest-growing markets. We had tremendous growth last year across the Asia-Pacific region. But Eastern Europe is also fast growing. The Middle East, coming off a small base had some very significant double-digit growth. We see growth rates there continuing. The phenomenon of Dubai has created a lot of attention across the Middle East. It's fuelling interest in creating economic hopes, investment centres and things of this nature as these countries think about diversification out of oil. And Africa has a lot of long-term potential. It's still very emerging if not pre-emerging, from a market perspective.

Back to your cloud computing partnership with Google. How will this relationship benefit IBM?

Nothing may come of it from a business perspective, but there are things to be learned from doing these things. We're a big R&D company. We do a lot of projects where we're not quite sure where it may lead to as far as business opportunity, but we believe we're going to learn a lot from it. Google has some good engineers. We have good engineers. You're looking at some of these problems with others and seeing what sticks and what applies.

We see Google as a customer. We also see Google as a potential go-to-market. And we certainly collaborate with them over standards. Certainly a range of intersect points, some of which are clear because you expect us to be collaborating on open standards. Others are more speculative as far as how does this activity around cloud translate into a business value proposition between the two of you or in the market.

Are you surprised Google has this interest in the corporate computing model?

No, I've known [CEO] Eric Schmidt for years. That's not a surprise. Some in Google are very much focused on the Google as you see it today. Some are working on the advertising, the thing that drives their revenue. You have other people who have other backgrounds and experience, who do understand corporate computing models. They're looking at how they can grow their business. They'll certainly continue to try to grow in delivering more capability to consumers. They took a very simple idea around advertising. Early on some people saw Google solely from the perspective of search. It was all about the search wars. And Google translated the search war into a very traditional 20th century advertising model delivered over the Web. Pretty everyday. We all understand advertising. So what's the big deal? Well they found a way to make it a big deal.