IBM Acquires Rational

In a surprise move, IBM agreed to acquire Rational Software Corp. Friday in a deal worth $2.1 billion.

IBM shook up the software and Web services development world Friday by acquiring Rational Software Corp. in a deal worth $2.1 billion--the companys largest acquisition since buying Lotus Development Corp. in 1995.

The purchase gives IBM the "broadest support for the largest number of platforms and integrated development environments" in the industry, said Steve Mills, senior vice president and group executive of IBMs Software Group, in Somers, N.Y., during a Friday teleconference.

IBM and Rational have worked together closely in the past, with IBM integrating Rationals development methodologies and products into its offerings. However, Rational maintained similarly close relationships with Microsoft Corp., fueling speculation that the Redmond, Wash., software giant might purchase the company.

Rational developed versions of its Rational XDE life-cycle development platform to support IBMs WebSphere and Microsofts .Net platform.

Observers were generally upbeat about the pairing. "The one question that hasnt been answered is whether IBM will maintain the Rational plug-ins for [Microsofts] Visual Studio," said Anne Thomas Manes, a Web services expert and former chief technology officer at Systinet Inc.

A spokesman for Rational said the company under IBM will continue to support the current IDEs and said he expects most developers on .Net to use Visual Studio. He said IBM will continue to support WSAD (WebSphere Studio Application Developer) and the IBM-sponsored Eclipse open-source platform for developers using Java and C++.

With the move, IBM gets a serious tools division to enhance its portfolio of software applications and management products that IBM officials said help position the company for its business On Demand strategy. Rational joins Lotus, Tivoli, WebSphere and DB2 among the key components of IBMs software strategy.

Rational provides a software development tools platform for J2EE, .Net, Linux and other environments, and about 600,000 programmers use Rational tools, the company said.

Rational has headquarters in Cupertino, Calif., and Lexington, Mass., and has more than 3,400 employees.

Mills said Rational "will be our flagship brand for application development tools for the application development lifecycle." Mills said Rationals CEO, Mike Devlin, will work under him and that the company will add 1,500 salespeople to IBMs software sales staff.

Stephen Forte, CTO of Corzen Inc., a New York-based online market research company, said, "The more I think of this, the more I think it fits. IBM likes to sell to the men in the white coats so to speak. No Rational product costs less than $5,000 per seat. No Microsoft product costs $5,000 per enterprise."

Other competitors were more concerned.

"The acquisition of Rational by IBM leads to concern that Rational will abandon their neutrality on Web services and development platforms," said Sam Greenblatt, senior vice president of research and development at Computer Associates International Inc., in Islandia, N.Y. "The ability to keep pace with advances in technology external to IBM is a question mark now. To be truly independent one must be platform-agnostic. This should concern HP, Sun, Intel, Oracle, Microsoft and BEA."

Patrick OToole, lead developer at Zagat Survey LLC, the restaurant survey company in New York, said: "When I think of development tools for Windows, I definitely dont think IBM. Whether they can deliver development tools is another story. I would guess that IBM wants to expand their ability to offer full product/solution life cycle management to their customers. But I dont see how that will benefit current Rational customers. IBM doesnt have a great track record with buying software companies--can you say Lotus?"

Sam Patterson, CEO of Atlanta-based ComponentSource Inc., said: "This is a coup for IBM as it adds another strong brand to add to its WebSphere portfolio and gives them the leading market share in the software development life-cycle products arena. However, IBM has some tough decisions to make on how they might use Rational to try to grab more market share for their WebSphere products."

(Editors Note: This story has been updated since its original posting to include company and third-party reactions.)