IBM's Proposed Acquisition of SPSS Puts Oracle, SAP, SAS on Notice

By Jeffrey Burt  |  Posted 2009-07-28

IBM's Proposed Acquisition of SPSS Puts Oracle, SAP, SAS on Notice

IBM's proposed $1.2 billion acquisition of SPSS is the most significant piece in the puzzle-at least since the Cognos purchase in 2007-in the vendor's push to give customers the tools they need to not only collect data but also to use it to their business advantage.

It also puts software rivals such as Oracle, SAP and SAS Institute on notice that IBM is pulling together a substantial package of solutions in this area, and probably is a precursor to a host of similar acquisitions by other vendors, according to analysts.

"We anticipate that this will serve as a precedent for comparable software deals over the coming quarters," Jereme LeBlanc, principal of TM Capital, said in a report July 28, just after IBM made its announcement.

IBM announced its intent to buy its longtime partner, which offers predictive analytics software and data mining tools, at an event in its Hawthorne, N.Y., offices in which it rolled out its Smart Analytics System designed for deep analytic workloads.

It's part of IBM's larger IOD (Information on Demand) initiative, which entails giving businesses the tools they need to access, analyze and act on data in order to gain a competitive edge over rivals.

Big Blue has bought a number of software companies over the past couple of years that fit into the IOD strategy-including Princeton Softech, DataMirror and Language Analysis Systems-but its 2007 acquisition of BI (business intelligence) software maker Cognos was the most significant of the earlier purchases. SPSS is the next key addition.

"Today's main focus is how IBM's $6 billion worth of R&D is coming together to deliver analytics to our clients," Ambuj Goyal, general manger of IBM Information Management software, said at then IBM event. "We continue to do this through both organic means and through acquisitions. SPSS is one such acquisition. ... Their products are all in the predictive analytics space. We OEM'd some of their technology as part of Cognos, and now we have it in-house."

The acquisition will set up IBM as a key competitor to Oracle, SAP and SAS in the predictive analytics space. Both Oracle, with its 2007 purchase of Hyperion, and SAP, which bought Business Objects the same year, have tightly integrated BI capabilities into their offerings. In addition, Oracle offers predictive analytics capabilities thanks to its purchase of Sigma Dynamics in 2006. Also, SAS has been the top maker of predictive analytics and data mining tools.

However, all that said, IBM's proposed move with SPSS puts it at the forefront of this burgeoning space, according to analysts.

"We view the move as highly strategic for IBM and believe that there was a -scarcity premium' place on the business," LeBlanc said, pointing out that SAS and SPSS dominated the high end of the predictive analysis space, with a host of smaller companies offering specialized approaches. "As such, we view this move as a shot across the bow of SAS as IBM continues to leverage the Cognos acquisition to steal market share within the broader [BI] and corporate performance sector."

The Cognos purchase established IBM as a leader in the traditional BI space, he said. With SPSS, IBM will be able to offer a full solution that LeBlanc said "will enviably position the company in this sector for the foreseeable future."

Forrester Research analyst James Kobielus agreed.

"For IBM's competitive standing in the data management market, this acquisition represents one of the last missing pieces of its [IOD] portfolio," Kobielus said in a blog post.

Capstone' to IBM's IOD Strategy} 

'Capstone' to IBM's IOD Strategy

Allan Krans, an analyst with Technology Business Research, called the SPSS acquisition a "capstone" to IB

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'Capstone' to IBM's IOD Strategy

Allan Krans, an analyst with Technology Business Research, called the SPSS acquisition a "capstone" to IBM's IOD strategy.

"Starting with the base hardware, moving through core management, database and business intelligence offerings, IBM is providing all of the tools customers need to store, manage and utilize their data to meet business needs," Krans said in a report. "The addition of Cognos provided cutting-edge tools for drawing conclusions regarding existing data, while the purchase of SPSS allows customers to look to the future, identifying trends in data that predict future events."

Predictive analytics software is getting a lot of attention from businesses, with a key driver being the global recession. Companies are confronted with not only shrinking budgets but also the need to reduce risks and drive business. Predictive analytics software is the other side of the coin from BI. Where BI software answers the historical questions of what happened and why, predictive analytics is focused on taking that information to predict future trends.

"In a lousy economy, you have to do everything you can to get that customer dollar," Clay Ryder, an analyst with the Sageza Group, who was at the IBM event, said in an interview. "It may sound crass, but it's true."

The more a business can learn about the customer and their buying habits, the more it can target products to that customer. It also improves the customer's experience with the business.

"If you can be more in tune with the needs of the customers, it's better than being just one of the many [companies] looking to sell products," Ryder said.

Given that need, businesses are looking to IT vendors not to simply sell them technologies, but to sell them solutions that will help their businesses. Jim Davis, senior vice president and chief marketing officer for SAS, said companies like SPSS and Business Objects were finding themselves increasingly out of step with the demands of businesses.

Given the poor economy, "businesses don't just buy technology anymore, they buy [technology] to solve a business problem," Davis said, adding that SAS for the past couple of years has been pushing a solutions-based approach.

That seems to have worked for SAS, which recorded a record $2.26 billion in revenue in 2008. Davis said that is attributable to SAS not only offerings solutions, but also the demand for predictive analytics in a tough economy.

He and other SAS officials expect that demand to grow, enough that the company three years ago-in conjunction with North Carolina State University-started a graduate degree program in data analytics.

As far as IBM's acquisition of SPSS, Davis said it made sense for both Big Blue and SPSS. However, given that IBM already had a reseller and OEM relationship with SPSS, it didn't really add anything to IBM's arsenal.

Sageza Group's Ryder said the move is important to IBM, but the real test will be what IBM does with the SPSS technology over the next couple of years.

Others agreed. Forrester's Kobielus said he expects IBM to build out the brand and phase out its own Intelligent Miner technology, which has become part of its InfoSphere portfolio. IBM officials also need to figure out what to do with the company's OmniFind solutions, which offer some similar functions as SPSS' tools.

IBM also needs to figure out how SPSS technology will fit in with its InfoSphere Balanced Warehouse database analytics offerings.

What also needs to be determined is how IBM's rivals will respond. Analysts said they expect more similar acquisitions as players like Oracle and-more likely-SAP react.

"One can't help but think that SAP missed the boat by not seizing the opportunity to acquire partner SPSS," said Kobielus, noting that SAP OEMs SPSS' Clementine technology.

TM Capital's LeBlanc agreed.

"SAP has been less aggressive in this area and will be forced to consider acquisitions of smaller vendors in the space, such as Angoss, Kxen, Portrait Software or ThinkAnalytics," he said.

In a prepared statement, SAP officials said that the partnership between SAP and SPSS has been a good one, and that they don't expect that to change under IBM's ownership. SAP will continue to partner with IBM, they said.

They also said that SAP offers predictive analytics capabilities through their BusinessObjects offerings, and that they plan to enhance those capabilities in the future.

Senior Editor Darryl K. Taft contributed to this article.


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