Welcome

Big news this week with the IBM/Ascential merger. Having worked with both companies, I have a lot to say about the news.

By the way, if you're a vendor in need of support, we may be able to help. See our pages on data warehouse / business intelligence product assessments and vendor marketing support.

Background (from Ascential Software and IBM press releases and information)

Yesterday IBM announced an agreement to acquire Ascential Software Corp. in a cash transaction for approximately $1.1 billion, or $18.50 per share. The companies expect the deal to close in the second quarter. Investors were positive about the deal, with both companies’ stocks moving higher yesterday. As of December 31, 2004 Ascential Software had $480.7 million in cash, cash equivalents and short-term investments.

Ascential Software makes data-integration software and will become a business unit within IBM's Information Management software division. Its technology and solutions will be incorporated into IBM's Information Management and Software Group offerings, in particular, the WebSphere Information Integrator product portfolio.

WebSphere Information Integrator software enables customers to centrally manage and access data that is stored across a variety of structured and unstructured sources, both from IBM and non-IBM vendors, in real-time. Ascential Software already integrates with IBM WebSphere Business Integration software as part of a services-oriented architecture (SOA). Many customers already use Ascential’s data-integration software along with IBM’s database and middleware products.

Ascential Software experienced rapid growth in 2004, with a reported 46 percent total revenue increase to $271.9 million. Ascential has over 3000 customers and partners. 550 are already IBM customers.

Comments

Yesterday morning I listened to the analyst briefing with Janet Perna, General Manager for IBM’s Information Management Division (note: she manages the division that Ascential will become part of) ; Nelson Mattos, Distinguished Engineer and VP of Information Integration; and Pete Fiore, President Ascential Software. The analyst briefing included a question and answer session with key analysts from Forrester Research and Gartner Group. There were favorable comments during the Q&A session with inquiries on the merger’s impact on partnering, product directions and the market overall. Although product visions were presented, it is too early for IBM to be discussing specific product decisions.

This appears to be a very synergistic and complementary merger across market vision, product lines and engineering resources. Ascential has had a broad vision of integration for years. It has acted on its vision by expanding its product offerings and capabilities, often through acquisitions.

Ascential has transformed itself from being ETL-focused to being a broader data-integration solution provider. It provides data profiling, data quality and metadata management; real-time and batch access; and has a commitment to web services and an architecture incorporating a spectrum of connectivity.

IBM, both through its software offerings such as WebSphere Information Integrator, and its consulting unit, offers its customers company-wide integration solutions. IBM and Ascential Software have been partners for several years and have had solid engineering cooperation, and have worked on many joint sales and marketing opportunities. IBM has been able to successfully acquire and absorb software firms and stated that this is its 21st software acquisition in four years. With their complementary engineering focus, the transition should be smooth. The combined information integration vision, accompanied by its software products and consulting services should be a powerful force in the industry offering expansive customer solutions.

As we have discussed in this newsletter before (Feb 2004 & Oct 2003), the movement from ETL to data integration is a natural extension of providing business solutions to meet ever expanding client needs. However, there is a corollary market effect accompanying this trend towards data integration. The market and customer demand is dividing between the “large and very large”customers and the not-so-large customers: the high-end, enterprise-wide, large-scale information integration solutions versus the rest of the companies that “just” want to provide consistent, accurate data for their business users to perform reporting and analysis.

The companies demanding high-end integration solutions have the need and the resources (time, people and money) to implement enterprise-wide integration solutions encompassing structured and unstructured data in a real-time, federated manner with high-volume transaction demands. These firms also want to communicate with their customers and external partners/suppliers. Many of them are already working with large systems integrators on multiple integration projects.

These are the companies that both IBM and Ascential Software mentioned in the analyst conference call as being the “large and very large” customers that they are targeting by this acquisition. They said that customers want “to purchase broader, more integrated platform capabilities” from their vendors. There was an interesting comment made during the briefing that the merger allows IBM/Ascential to not leave money on the table in customer situations where Ascential alone might not have had a broad enough offering.

Market Opportunity

The rest of the market is still working on obtaining and presenting consistent, accurate data to their businesses. These “not-so-large” companies may already have multiple data warehousing or business intelligence efforts, but are still trying to fulfill the demands for data to their business users. Federated, real-time data sounds great to them, but their business needs are much more basic than that. This market segment includes not only the SMB (small to medium businesses) market, but also many companies in the Fortune 1000 who do not have the resources to invest like their larger brethren.

Many companies simply just do not have the resources (time, people or money) to make the investment in an all-expansive information-integration solution. Nor do they have the ROI to justify that investment even if they had it to spend. This market is not necessarily the immediate focus of the IBM/Ascential merger. It is easy to get excited by the industry articles and case studies discussing significant large-scale integration successes, but those situations are a luxury that many in the industry cannot afford.

It was asked during the Q&A session how IBM/Ascential would respond to Oracle and Microsoft with their database-integration offerings with regards to IBM’s current DB2 solutions and future product directions. IBM responded that it was too early to determine specific product offerings, but that IBM does leverage software components in multiple solutions so that Ascential technology may play some part in the DB2 family. IBM/Ascential may very well address the rest of the market outside the high-end realm, but that is still a to-be-determined scenario.

Oftentimes, vendors think a lower-priced, stripped-down version of a product is all that is needed to penetrate a market outside the high-end users, but this approach can miss the mark. A solution for this market needs to be cost- and resource-effective to be used and deployed. It’s not the initial license cost alone, but the time and resources to learn, use, deploy and maintain solutions that determine their effectiveness. Many companies do not have integration centers of excellence and dedicated resources for data integration. In these instances, easy to learn, deploy and maintain is paramount to success. The IBM/Ascential merger could result in products and services to address this market, but that market does not appear to be where they are focused now.

Meanwhile, does this present a market opportunity for Oracle and Microsoft, as well as many independent ETL vendors? Microsoft offers many examples of initially offering simple (and inexpensive) capabilities and then expanding a product’s capability along with the customer’s needs. Microsoft SQL Server 2005 significantly expands its data warehousing, business intelligence and integration capabilities. Even though many ETL vendors have been acquired over the years, there are still many companies offering very capable ETL products. Their products are both cost- and resource-effective and may present an easy entry point, along with the Microsoft and Oracle offerings, for companies concentrating on the initial ETL projects.

One Less Independent Software Vendor

One of the messages from IBM/Ascential was that customers want solutions from a single vendor. The flip side of that view is that some companies would prefer data-integration solutions from independent software vendors. IBM/Ascential will assuredly continue to support open connectivity and partner with competitors such as Oracle and SAP. But their “openness” may not appeal to everyone. Some customers believe independent vendors offer a more neutral platform. IBM will have to address these concerns, and may not be able to convince everyone.

This may also impact partnerships with ISVs, resellers, systems integrators, and ERP and business intelligence vendors. Although IBM/Ascential partners with many of these firms, independent ETL vendors such as Informatica may be able to leverage that “neutrality” to forge close relationships with many of these firms. In addition, this may also make relationships with smaller independent ETL firms more attractive.

Impact on Competitors

IBMs’ prime competitors in the information-integration space continue to be Oracle, Microsoft and SAP. All provide ERP, an application development platform, integration capabilities, data warehousing and business intelligence offerings. In addition, Oracle and SAP also have significant consulting units. With this merger all of these companies continue to both partner and compete with each other. The merger raises the stakes in this clash of the titans and continues the trend of software consolidation in the industry.

What about Ascential's primary independent competitor Informatica? Informatica has a partnership with IBM. IBM’s consulting unit has implemented Informatica-based solutions for many of its customers. The portion of IBM that was formerly PWC Consulting sold and implemented many Informatica-based customer solutions over the years.

Although IBM does sell and implement competitive solutions, will the merger shift the solutions they sell to their own offerings? If a customer already uses Informatica, IBM is unlikely to displace that solution except in the rare case where there are real problems. What this means is that IBM consulting will continue to service their Informatica-based customers on an ongoing basis.

But regardless of how open any vendor is, there will be increasing competitive pressure within IBM to shift to Ascential-based solutions rather than using Informatica. Why? IBM/Ascential will be working to build the most comprehensive information-integration capabilities in the marketplace. Why wouldn’t an IBM consultant select the IBM/Ascential offering if they thought it was superior (or even functionally equivalent?) In addition, IBM marketing and sales will be promoting their own comprehensive information integration platform so it is more likely their messages will impact their existing customers and prospects. There is nothing wrong with this progression and it is likely to happen.

The bottom line is that Informatica will both be a partner and a competitor. With its size compared to IBM this will likely build competitive pressure on it within this channel.

Who's Next?

That brings us to our crystal ball and the question – will Informatica stay independent or will they be acquired? Informatica has been successful and can continue to remain independent if they wish, but will they want to and will another firm wish to incorporate their technology into their product portfolio?

Potential suitors are SAP and Oracle, with Microsoft being a dark horse candidate. These firms are the most likely because of their size and their vision of providing information integration to their customers. They provide Enterprise Resource Planning systems (that keep expanding), business intelligence, data warehousing and application integration solutions, as well as consulting services.

Although they are all partners with each other, they also compete with each other on many fronts. SAP could continue to partner with Ascential Software and IBM, especially in regards to Ascential’s technology. But will SAP’s information-integration vision start bumping up against IBM’s product portfolio? You’d think that Oracle would be too preoccupied with the PeopleSoft (and JD Edwards) acquisition to think about any further acquisitions, but just last week it countered SAP’s $496M bid for Retek, a software company that specializes in retail applications. Stay tuned, but do not be surprised if Informatica comes into play between these two software titans.

Conclusions

The IBM/Ascential merger makes sense. It builds on information integration visions that are synergistic and complement each other. Coupling the companies’ products and engineering talent should lead to very robust, enterprise-wide information-integration solutions for customers. Add in the IBM consulting unit, and IBM can deliver a solution many customers need.

As I drove by Ascential headquarters last night, I reflected on how many times I have seen the company name and logo change on top of the building. Each corporate shift has moved the people in that company farther down the road of building a data-integration platform. The approximately 1,000 employees and the company headquarters are supposed to be staying in place in the new business unit. This merger should benefit not only the investors and company officers but more significantly its employees and customers.

What are your thoughts on the merger? Any questions? Let us know.