990RA IBM Software: Going Vertical and Selling Outcomes

What is Happening?  While there are a number of important software industry trends that ebb and flow through time, the advent of the Cloud is clearly encouraging many technology providers to go vertical and emphasize solutions – as technology decisions are increasingly made at the functional and business unit level (where the underlying technology infrastructure will often be hidden from the buyer). This trend was clearly in evidence at IBMs annual Software Analyst Connect event at the Hilton in Stamford, CT earlier this week – which was entitled “Smarter Software: Driving new capabilities, new markets, new models & new buyers.” To net it down, IBM is increasingly focusing its selling message and product development around customer business objectives, required capabilities and outcomes, rather than on technology products per se.

Saugatuck believes that this broader trend toward business outcomes and vertical go-to-market strategies applies across many software and solution provider categories. For example, recent briefings with offshore outsourcers and system integrators clearly supports this trend (see 987MKTand 988MKT, published 29Nov2011), as well as refreshed go-to market approaches by major application providers such as Infor, who are now emphasizing a vertical market value proposition (thus reducing the complexity of their legacy brands). In the case of IBM, it is clearly putting investment weight (in the form of significant M&A activity) behind this important shift in go-to-market strategy and position, at the same time that it aligns the broad range of internal teams required to successfully support the change in direction.

Why is it Happening?  Continuing a theme presented last year at the annual IBM Software Group analyst event, IBM clearly emphasized that it has re-organized itself so that it can more effectively develop and sell vertically-targeted solutions and outcomes, rather than its historic focus on selling branded technologies. This is not to say that it will not continue to develop and market a variety of technology “capabilities” – across the broad range of middleware, systems and information management, analytics and social technology categories. It is now focusing on providing technology within the context of industry business requirements (see Note 1 for list of key IBM Software capabilities). Thus a major thrust of their positioning is clearly away from emphasizing the sub-brands, and instead toward “IBM Software” as THE brand – with vertical solutions and outcomes being front and center (and the big new money maker) going forward.

In our opinion, this makes good business sense. The shift to the Cloud is clearly driving a need for technology-centric software providers to package up their offerings in such a way that they are attractive not only to traditional IT buyers, but to operationally-focused buyers and LOB executives (e.g., marketing, supply chain, finance, HR, product development, operations, sales, customer service). In this regard, IBMs evolved solution- and outcomes-centric positioning helps to hide the technology complexity that resides under the covers. And boy oh boy, IBM certainly has plenty of complexity. We might be wrong, but we are pretty sure the sub-brand “Lotus” was never mentioned in the main tent sessions (even if the broad range of collaborative “capabilities” were), with “Tivoli” cited only when we were presented the business card of the divisional CTO who we had a scheduled 1-on-1 session with – with the executive sharing that these were “old” cards.

No doubt, IBM will continue to deliver industrial strength software infrastructure technologies, driven by both organic innovation and acquisition (e.g., Q1 Labs). Yet at the same time, it is becoming increasingly clear that it’s M&A focus is equally if not more focused on supporting its evolved mission of delivering functionally- and vertically-targeted solution capabilities than its historical focus on acquiring important enabling technologies. Just look at the investments made over the past 2 years to support the growth of its Enterprise Marketing Management business (e.g., CoreMetrics, Unica), or the $14 billion it has spent over the past 6 years on “capability” acquisitions in support of its emerging business analytics and optimization unit. 

Given the size and scope of IBMs services business, focusing on traditional horizontal business solutions where it makes a ton of money deploying SAP and Oracle on-premise application was never seriously in the cards. Given this, going vertical and building sophisticated solutions that leverage . . .CLICK HERE TO READ THE FULL RESEARCH ALERT