As IBM turned 100 years old this month, the company received a lot of fanfare and attention. Amazingly, the company has managed to stay relevant in the fast-paced world of technology for a century. Many analysts reflected on its past achievements and milestones, while others talked about its current innovations. I'm a fan of the retrospective approach, but I often find it more interesting to think about where a company is headed rather than where it's been.
In the spirit of forward looking analysis, I decided to dig into IBM's merger and acquisition strategy. The name of Big Blue is never far away when the topic of tech mergers and acquisitions is brought up so I thought it'd be an interesting angle to take given the company's 100 year history. Naturally, I had to dig into IBM's history a bit to understand its future. I took a look at the last 10 years of IBM's merger and acquisition strategy.
As I took a look at IBM's history, it was fairly obvious that it loves to purchase services and analytics. It purchased 14 services companies in the last decade alone. It also dropped a pretty penny in business analytics, which is marked by its massive purchase of Cognos which it got for a cool $5 billion. These were obvious areas of continued focus, but IBM never stays in one place too long - take a look at its portfolio and you'll see what I mean. As I thought about its strategy, one thing came to mind: cloud. IBM has made no secret that it plans to mine the cloud market for all it's worth. According to its estimates, it expect it to be a $7 billion a year in business by 2015.
That's all well and good, but the cloud is really more of a marketing concept than an actually thing. You can't simply buy a chunk of the cloud market; you need to buy the things that make the cloud run. From an IBM perspective, I see three major areas of focus in the cloud market: cloud infrastructure management, cloud application performance management, and cloud services. In each of these sections, I came up with a couple of companies that I can see them purchasing in each of these areas. Here's what I came up with.
Cloud Infrastructure Management IBM has always made it a point to manage infrastructure. It's part of IBM's strategy to remain largely brand agnostic in its dealings with large enterprises. It made a killing off this market with its Tivoli systems management unit in the on-premise world, why shouldn't it be able to do this in the age of the cloud as well?
In looking at the market for companies of this nature, two companies stand out in my mind: Eucalyptus and RightScale. Eucalyptus is a great purchase on the private side of the cloud for enterprises that want to keep it all at home. RightScale is where it's at in terms of the public cloud. It works with nearly ever major cloud provider -- Amazon EC2, etc. -- and it has experience deploying roughly 2 million servers. These are both still relatively small companies, but with a nudge from Big Blue they could become a force to be reckoned with.
Cloud Application Performance Management This just seems like a natural fit for IBM to take over in this place. It's an application that runs deep in the technology stack and is built for IT professionals. It jives with the IBM style. It's another area of cloud management that IBM could focus on.
The two vendors that come to mind here are AppDynamics and New Relic. Of course there is plenty of competition in this space, but these companies are young and making waves in application performance management. AppDynamics already has a customer base of 30K and supports companies like Taleo. It's making things happen. New Relic is also a great vendor in this space. It is a lot like AppDynamics but supports even more programming languages. It's also got a strong base in the world of SMBs.
Cloud Services As IBM looks to the cloud, it just seems logical that services will be a part of its strategy. Professional services make up a huge portion of IBM's revenue, so there's no reason that it would turn its back on this segment now. A lot of firms out there have some cloud capabilities, but there are relatively few that focus purely on working in the cloud. If IBM were to snap one of these guys up, it would bring a dynamic offering to IBM's already powerful services portfolio.
One of the cloud services companies that is shining brighter than many of the rest is Appirio. It's been around for a while, but it recently shifted its focus to the cloud. In addition to its professional services, it's also got a lot of its own custom code it can use to help a business in need. Additionally, it's started to focus a lot on mobility which is a hot item in the enterprise these days.
Alternatively, IBM may consider a smaller Milwaukee-based firm called Xorbix Technologies. Xorbix isn't crushing the market quite as hard as Appirio, but it's doing some good work. Even as a small firm, it's working among some big names, helping out some of Salesforce.com and Google's biggest customers. Either would play nicely with IBM's professional services.
Well, there you have a few of my ideas of where IBM might go in the cloud. As such a vast company, its M&A strategy is difficult to discern, but I think these are reasonable areas for IBM to shop around in. Of course, these aren't the only places that I think it may look to buy. After all, it recently stated that it's willing to let go of $20 billion in the next five years. I've listed more of my ideas on my blog at Software Advice.
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Footnotes: This write-up is a follow up to a piece that I recently published on my blog at Software Advice, a website that reports on MRP Software and other enterprise technology. You can view the full article and take the poll at IBM Mergers & Acquisitions: Who's Next?