IBM and Its Analytics Roll Up

April 20, 2012

IBM created WebFountain. In 2004, Searchblog posted a lengthy discussion of a system which would make sense out of the World Wide Web. “WebFountain, the Long Version” was a result of information provided by IBM’s engineers at its Almaden research facility. In 2004, WebFountain was one consequence of “ten years of work at Almaden on the problem of search.” The system was able to perform a number of sophisticated processes in order to allow IBM customers to make sense of large volumes of data. Wikipedia has a brief write up in which WebFountain is described as an “Internet analytical engine implemented by IBM for the study of unstructured data.”

In “IBM Betting Big Bucks on Data Analytics Software” I learned that IBM acquired Varicent Software. Varicent is an analytics and sales performance management company, which is a vertical solution with analytics as a foundation block. The key point in that article is that IBM’s “make sense out of data” revenue is expected to hit $16 billion by 2015. With analytics emerging as a hot sector for start ups, IBM seems to be a giant.

However, IBM’s analytics shadow has not been built on IBM innovations. The company has pursued an acquisition path with milestones such as Cognos (a $4.9 billion purchase in 2007) and SPSS (a $1.2 billion purchase in 2009), and the recent Varicent deal for an undisclosed amount. In addition, IBM acquired Algorithmics, Clarity Systems, i2, and OpenPages. “IBM and Varicent: Another Piece of the Analytics Puzzle” noted “IBM’s 4Q11 acquisition of DemandTec enables companies in the retail and distribution industries to make insightful decisions around pricing, while the fourth quarter acquisition of Emptoris focuses on improving and facilitating supply chain management decisions.”

Each is an analytics vendor.

The approach was described by Zacks.com as “accretive acquisitions.” “IBM to Buy Varicent Software” said:

Since 2005, the company has invested $14.0 billion in acquiring 25 companies. The company has engaged more than 10,000 technical professionals and 7,500 consultants in its analytics operations. IBM has 8 analytics solutions centers across the world and has more than 100 analytics-based research assets.

At a recent conference, analytics vendors talked about the demand for their services. None of the firms making presentation—for example, mentioned the IBM analytics empire or it possible dominance of the industry.

Several observations about IBM’s impact on the analytics sector.

First, there is now considerable blurring of structured data and unstructured data. The term “big data” implies that there are sufficient volumes of data to require highly sophisticated “roll up” systems to make sense of available information. IBM’s portfolio of analytics companies seems to have a solution to almost any business problem. At this time, IBM’s analytics products and services are not tightly integrated. Some assembly required applies to most analytics solutions. Will IBM be able to offer the “snap in,” fast start, and point-and-click approach some organizations desire?

Second, IBM’s broad portfolio of analytics tools, vertical solutions, and components is extremely broad and deep. IBM’s Web page “Take the Lead with business Analytics” covers only a fraction of what the company offers. How will IBM solution engineers keep track of what’s available and how certain products best solve certain customer problems?

Third, IBM seems to be collecting technologies, revenues, and customers. Some of the companies IBM has acquired such as i2 Group require specialized skills and expertise. In the case of i2, the typical analytics professional would require additional vetting and training to work with the firm’s particular tools. How many other of IBM’s analytics acquisitions “look” on the surface to be general purpose but on closer inspection are actually quite narrow and deep in their application?

My view is that IBM’s investments in analytics have created a demand for analytics. How can Big Blue be wrong? On the other hand, IBM may find that buying analytics companies does not deliver the payoff IBM management and IBM customers expect. The time, cost, and actual “real world” deliverables may be different from the expectations.

IBM will have to demonstrate that it can create a portfolio of solutions which can compete with the lower cost, cloud centric approaches that are proliferating. IBM has an anchor in open source search for unstructured data and a number of specialized luxury yachts for structured data. From a distance the fleet looks formidable. Up close, the same vulnerability teenagers in a skiff exploit in commercial shipping traffic may exist.

What’s clear is that IBM’s reputation for innovation has given way to innovation via acquisition. My hypothesis is that analytics is a very fragmented and niche business. IBM may have to buy more and more analytics vendors just to have a solution for the quite individualized problems many organizations face.

Stephen E Arnold, April 20, 2012

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