IBM Scoops Up Rational

$2.1B deal makes company a development powerhouse.

IBM shook up the software and Web services development world late last week when it agreed to buy Rational Software Corp. in a deal worth $2.1 billion—the companys largest software acquisition since buying Lotus Development Corp. in 1995.

Rational 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., in a 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 company might purchase Rational.

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, CEO of Bowlight Inc., a Boston market analysis and consulting company.

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 WebSphere Studio Application Developer and the IBM-sponsored Eclipse open-source platform for developers using Java and C++.

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

Rational provides a software development tools platform for Java 2 Enterprise Edition, .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.

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

Stephen Forte, chief technology officer of Corzen Inc., an online market research company in New York, said, "I think it fits. IBM likes to sell to the "men in the white coats. No Rational product costs less than $5,000 per seat. No Microsoft product costs $5,000 per enterprise."

Some competitors were more concerned. "The acquisition of Rational 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."

Peter OToole, CTO at Zagat Survey LLC, in New York, said, "When I think of development tools for Windows, I definitely dont think IBM. I would guess that IBM wants to expand their ability to offer full product/solution life-cycle management to their customers. IBM doesnt have a great track record with buying software companies—can you say Lotus?"