It was only a few months ago that IBM software chief, Steve Mills, told Canadian journalists that IBM had no plans to buy or build its own applications.
“It’s not that we’re scared of applications,” the senior vice-president of the IBM Software Group said at the time. “No company can do everything… it’s a case of deciding where you want to compete and where you want to cooperate or build a community.”
Mills has softened that stance somewhat in recent weeks, as he was the architect behind the US$5 billion IBM-Cognos blockbuster deal, which essentially created an applications business for IBM using the channel.
But this wasn’t a complete surprise to the VAR community, since rumours have been floating around about a potential acquisition since last year. It also follows on the heels of Oracle’s acquisition of Hyperion and SAP’s purchase of Business Objects. And last year, Open Text bought rival Hummingbird, so IBM was running out of options for potential BI acquisitions. Cognos wasn’t up for sale, but it had been a long-time IBM business partner, and agreed to a friendly takeover.
The bigger surprise was that this contradicted Mills’ former stance that IBM had no plans or desires to get into the apps business. (Consider IBM’s last big effort in this space: its 1995 acquisition of Lotus and its subsequent integration efforts didn’t go quite as smoothly as anticipated, and Lotus Notes has long since played second fiddle to Microsoft Exchange).
In a statement issued during the announcement of the acquisition, IBM said the purchase supports its Information On Demand strategy, which was initiated last year to combine IBM’s information integration, content and data management, and business consulting services. IBM has also been trying to build out its higher-margin software business, and this will play a role in setting up a one-stop BI shop.
Following the announcement, Mills said in a conference call with press that IBM hasn’t changed its strategy in any fundamental way. “We have applications technology in our portfolio today,” he said, such as Notes and FileNet. (IBM bought FileNet, a content management software vendor, last year).
Mills also said IBM has been watching an increasing shift over the years toward a real-time prospective approach to business analysis, decision-making and performance management. The acquisition of Cognos, he said, would drive more growth for IBM over time.
“Customers are demanding complete solutions, not piece parts, to enable real-time decision-making,” said Mills in a statement. Cognos is a good fit with IBM’s data warehousing, information integration and analytics business, he said, and will also complement IBM’s service-oriented architecture strategy.
He said IBM’s previous model for reaching the applications market was insufficient. By acquiring the Canadian developer of business intelligence applications, Big Blue is looking for tighter integration with IBM’s WebSphere middleware and DB2 database (the Cognos 8 suite includes modules for reporting, scoring and creating dashboards that display business metrics).
The deal is expected to close in the first quarter of 2008, though channel integration plans won’t be worked out in detail until further along in the process. After closing, the idea is to begin working with partners on channel road maps – and IBM says it plans to continue working with Cognos partners.
Mills has played a role in shaping the IBM Software Group since its inception in 1995, when he became responsible for IBM’s middleware strategy and software solutions for e-business. He took over his present role in July 2000 to shape IBM’s overall software strategy – coming a long way from the time he joined IBM in 1974 as a sales trainee.
Rely on the channel
IBM’s software business now contributes $20 billion of IBM’s revenue and 40 per cent of its profits. Since Mills’ tenure, the software business has grown to more than 45,000 employees and acquired 44 companies.
In a conference call, Mills said IBM has a history of investing in the companies it purchases, and the plan is to integrate Cognos with IBM’s information management division, headed up by Cognos CEO Rob Ashe.
Some industry watchers anticipate that IBM will have to rely on the channel to make a play in the SMB market.
IBM says it’s committed to existing ISV partners – it will continue to work closely with Business Objects, for example, as well as other partners.
Despite this, IBM may become more dependent on applications, since it’s been getting rid of much of its hardware business.