BIG BLUE BITES BACK

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Can IBM ever be cool? until last week, the evidence was slim. Yes, company chairman Louis Gerstner urged employees when he arrived two years ago to dispense with formality and send him their thoughts via E-mail. Then he instituted a dress-down policy and had IBM take out 50,000 subscriptions to Wired magazine, the chronicler of online culture. This year he paid for irreverent TV spots, including one showing one Czech nun telling another that IBM's OS/2 Warp software "sounds pretty hot."

But last week Gerstner, 53, proved his company was really serious about getting with it: he moved to seize control of Lotus Development Corp. and its Notes software program, one of the fastest-growing parts of the $100 billion desktop-computing industry. In an unprecedented step for Big Blue, Gerstner launched a hostile bid to acquire Lotus for $3.3 billion, or $60 a share, more than twice the price at which the stock had been trading. At the same time, IBM went to court to challenge a Lotus "poison pill" that would make a takeover prohibitively expensive and appealed to Lotus shareholders to oust the firm's board of directors. "Call this IBM unleashed," says Marc Schulman, president of Technology Strategies Group, a Connecticut firm that consults with computer companies. "The whole mind-set of the company has changed."

IBM would put its worldwide sales force and $7 billion in cash behind Notes, which dominates the market for so-called groupware and which, experts say, represents the next big advance in personal computing. By using Notes, teams of workers in different offices-or even different countries-can call the same documents to their computer screens and work on them together. Lotus commands fully 65% of all sales of groupware, which total about $500 million at present and are expected to balloon to $5 billion a year by the end of the decade. "Today, Notes is the only game in town," says Carter Lusher, a research director at the Gartner Group, which tracks the computer industry.

That would give Gerstner an ideal weapon for challenging industry giant Microsoft, which dominates most other parts of the desktop software business. Not only would IBM reap increasing revenues from sales of Notes, but other software companies could use it as a "platform" on which to build their own programs and thereby turn it into a global standard. "In this industry he who is first garners an enormous amount of benefit," Gerstner says. But Microsoft chairman Bill Gates, who plans to roll out a groupware program called Exchange later this year, dismissed the IBM-Lotus alliance. "I just don't think hardware companies can manage software companies," he told the Wall Street Journal.

The biggest skeptic was Lotus chairman Jim Manzi, 43, who had spurned an IBM merger offer in January and learned of the takeover attempt in a phone call from Gerstner at 8:25 a.m. last Monday, five minutes before IBM went public. Manzi swiftly hired investment banker Lazard Freres to plot defense tactics and search for a white knight, such as AT&T or Hewlett-Packard, that would rescue Lotus. No savior had appeared by week's end, however, and Manzi seemed resigned to coming to terms with IBM if it would sweeten its offer. Wall Street watchers expected IBM to do just that to make the deal friendlier.