Not many people predicted this: IBM announced Tuesday morning its intent to acquire Chicago-based predictive analytics software company SPSS for approximately $1.2 billion in cash. In a media teleconference Tuesday morning, Ambuj Goyal, general manager of IBM's Information Management business explained that the deal -- which, at $50 a share, represents a 42.5 percent premium to SPSS's Monday closing price -- will serve to deepen the existing partnership between the two companies. "Predictive analytics will be a critical catalyst in all the directions that we are heading," Goyal said, "because it not only provides greater insight but true foresight." The SPSS announcement was one of three from IBM on Tuesday, joined by IBM's introduction of its integrated analytics offering (the Smart Analytics System), as well as the announcement of another acquisition (software security provider Ounce Labs).
IBM has spent several years spent building out its offerings in business intelligence (BI) and data warehousing (highlighted by the $5 billion acquisition of BI vendor Cognos in 2007), and, according to Forrester Senior Analyst Jim Kobielus, the acquisition of SPSS brings "one of the last missing pieces" -- that is, predictive analytics and data mining -- to IBM's Information on Demand (IOD) software portfolio. That portfolio is part of the company's overall Information Agenda approach, which includes the Business Analytics and Optimization Consulting organization unveiled this past April.
Theoretically, the overarching goal of this acquisition is to help all industries -- during the teleconference, Goyal cited healthcare, education, and financial risk management -- shift from the reactive mode of "sense and respond" to a more proactive "predict and act." "Our intent to acquire SPSS is a clear demonstration of IBM's commitment to helping customers create value...[and] create efficiency," Goyal said, adding that the acquisition aims to help cement IBM's position "as [the] most-complete provider of business analytics to an Information on Demand stack, [with] the consulting capability and best-of-breed capability...to deliver value, service, and solutions [to] create the next-generation efficiencies for our clients."
The two companies described several aspects in which the acquisition of SPSS will help IBM expand its capabilities and offerings, including:
- Customer acquisition and retention (financial services);
- patient-care improvement (healthcare);
- crime prevention (public sector);
- store-location planning (retail and manufacturing);
- demand forecasting;
- employee hiring and retention;
- customer profitability;
- credit scoring; and
- fraud protection.
"Anytime you hear these things, you wake up in the morning, you're always at first surprised," says Kimberly Collins, managing vice president at Gartner, of the news. The shock, however, is quick to wear off. "It was only a matter of time," she says.
The acquisition "rounds out the business intelligence capabilities of IBM Cognos," says Gareth Herschel, research director at Gartner, though he notes that the solutions are not yet integrated. "[It] leaves competitors breathing space but could be [a] formidable competitor in the future," he says.
Collins says that she's more interested in seeing how the acquisition will play out for IBM in terms of stepping back into the application space, particularly around CRM. In 1998, IBM launched its independent CRM software Corepoint, only to shut it down a year later and fold the technology back into the company's Application Integration Middleware unit. While Collins says the company's IBM Global Business Services unit does engage in the CRM consulting space, given its $3.5 billion acquisition of PricewaterhouseCoopers (Pwc) Consulting in 2002, "from an application software point of view, it was not successful at CRM." IBM has an opportunity -- if it positions itself correctly and invests the necessary resources into research and development -- to reinsert itself into the CRM space, Collins says, noting that companies are getting "thirstier and hungrier for analytics, particularly around CRM." The challenge she sees, however, is whether this acquisition actually deters those who would have purchased SPSS prior to the acquisition.
SPSS's strongest predictive analytics competitor, SAS Institute, sees the acquisition as an opportunity, says Jim Davis, the company's senior vice president and chief marketing officer. SAS, he says, will be able to take advantage of potential market uncertainties as current and prospective SPSS and IBM customers speculate about the future. In terms of market share, SAS owns 33 percent of the analytics market compared to SPSS's 14 percent, he says; moreover, Davis shrugs off the notion of a direct rivalry, stating that advanced analytics represents only about 25 percent of SAS's business and placing SPSS as just one of 400 competitors his company tracks regularly.
Should IBM decide to pursue this market and tie SPSS CRM applications into the IBM database, Herschel points out that while the acquisition provides SPSS with a "solid financial backing and channel to market, [the deal] calls into doubt [its] strong CRM focus." So although this acquisition may bode well for SPSS's non-CRM customers, it may in fact be neutral, or even carry a negative impact, on its CRM customers, he says. Nevertheless, he says, as long as IBM maintains a data-porting strategy that allows SPSS to run against several databases, CRM customers may ultimately see little operational difference.
For SPSS, this is an opportunity to reach the next level in terms of fully establishing itself in the CRM market, analysts say. SPSS offers a higher level of analytical CRM solutions, which provide an improved leverage point for IBM's database competency if Big Blue is interested in re-entering the CRM application market. (IBM's prior CRM applications, analysts say, were more focused on operational aspects of CRM, such as sales and service.)
During the media teleconference, Goyal made assurances that existing IBM and SPSS partnerships will not be impacted by the acquisition. IBM's history of strategic acquisitions is underscored by a philosophy that the company "invests to grow," he said. "We are not in a model of acquiring, consolidating, getting rid of people.... Every acquisition...[is] all about creating a strategic play in the industry." Partners and clients, he said, should recognize that the acquisition offers only good news -- as IBM delivers capabilities from SPSS while adding more value by leveraging what IBM and SPSS each has to offer.
Meanwhile, the SPSS news nearly dwarfed IBM's announcement of another deal, the acquisition of Ounce Labs. Consultancy Technology Business Research (TBR) commented in an email that the acquisition "represents an important investment for IBM," particularly in the areas of "application development, embedded security, and cloud computing." The Ounce acquisition, TBR added, will likely serve to complement IBM's 2007 acquisition of Watchfire, a provider of software and services for security testing and compliance management. As a result, TBR says, IBM will be able to offer "a holistic security solution...to ensure the security of developed applications." IBM did not disclose the cost of the transaction, but TBR estimates the price tag was in the neighborhood of $50 million.
TBR calls the unrelated acquisitions of SPSS and Ounce merely "a starting place" in terms of acquisitions, and the consultancy projects more acquisitions of greater than $1 billion to be announced before the year ends.
SPSS is the 27th addition to IBM's IOD portfolio since 2001. Some of the highlights of that buying spree, according to documents provided by IBM, include:
- FileNet (Deal announced August 10, 2006)
- Webify Solutions (Deal announced August 2, 2006)
- Unicorn (Deal announced May 8, 2006)
- LAS (Deal announced March 17, 2006)
- Bowstreet (Deal announced December 20, 2005)
- iPhrase (Deal announced November 1, 2005)
- DataPower (Deal announced October 18, 2005)
- DWL (Deal announced August 2, 2005)
- PureEdge Solutions (Deal announced July 19, 2005)
- Ascential (Deal announced March 14, 2005)
- SRD (Deal announced January 7, 2005)
- Venetica (Deal announced August 26, 2004)
- Alphablox (Deal announced July 14, 2004)
- Trigo Technologies (Deal announced March 9, 2004)
- Green Pasture (Deal announced December 17, 2003)
- CrossAccess Corp. (Deal announced October 14, 2003)
- Tarian Software (Deal announced November 4, 2002)
- Access360 (Deal announced September 3, 2002)
- TrelliSoft (Deal announced August 29, 2002)
- Informix (Deal announced April 24, 2001)
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