Is IBM's Acquisition of SPSS Too Late?

IBM is spending $1.2b to buy Chicago-based SPSS, one of the three major statistics and data mining software companies. The cash offer is a 42% premium to its previous close and 2.6x anticipated revenues.

Most academics know SPSS for its eponymous statistics software that is the standard for psychologists and other social scientists. Its main rivals in this area are SAS Institute — used by high-end data miners — and StataCorp, the favorite of economists. On a personal note, I dumped SPSS in 1996 when they abandoned the Mac (causing me to establish the MacStats web page), switching to Stata which I found more intuitive and easier to use.

SPSS has been following SAS into the data analytics segment for business since that’s a much bigger market than selling scientists statistics software. Personally, I think SAS is a tough competitor since they created this market and with 2008 revenues of $2.2b, are 5x as big as SPSS. More importantly, the privately held Cary, NC company has an admirable corporate culture that Google once studied to understand how to motivate and empower technical professionals.

IBM has a mixed record on software. They have a very successful software arm, and so (unlike Intel (INTC) spending $884m to buy WindRiver) they understand the creation and sale of software. On the other hand, IBM’s largest software acquisition, spending $3.5b in 1995 to buy Lotus Development (instead of Apple (AAPL)), turned out to be a declining business.

SPSS will have formidable competitors. SAS has rejected acquisition feelers with CEO/founder Jim Goodnight growling that “IBM and SAP acquire because they're so stagnant they're unable to grow themselves.”

More seriously, SPSS has a major open source competitor that’s gaining favor here among Silicon Valley dataminers (including at Google (GOOG)). The R software package was begun in 1996 as an open source knock-off to S from Bell Labs, and with nearly 2000 donated extensions, has the most vibrant third party community of any data analytics package. The popularity of the R platform has exploded in the past 4 or 5 years, and certainly SPSS must be feeling the competition.

So is this another example of IBM (as with Lotus) buying a software business too late? Or (also as with Lotus), is the value of integrating and aggregating the SPSS solutions with its other software and services, creating a value for the SPSS software that would not be available to a stand-alone company?

Disclosure: None

Comments

[RLLH:]

IBM buying software too late? I suggest you take a look at their accounting figures over the last 5 to 10 years and this question shoulde answer itself to you. I suspect most software companies would like to be such a failure.

Jul 30 10:41 AM

[Frank Xavier:]

Besides of the R project, there is another open source data mining competitor for SPSS and SAS increasing the pressure: RapidMiner.

Look at the results of the yearly KDnuggets poll among data mining experts in 2007, 2008, and 2009, and you know what I mean:

www.kdnuggets.com/poll...
www.kdnuggets.com/news...
www.pressebox.de/press...

Rapid-I, the open source company behind the open source data mining software RapidMiner has doubled its team, revenue, and profit every year and Rapid-I has a profit margin most closed source companies would like to have.

By the way, RapidMiner is available for any major operating system including Apple Mac OS, Microsoft Windows, Linux, etc. Check it out for yourself at www.rapid-i.com/

Cheers,
Frank

Jul 30 11:51 AM

[Manya Mayes:]

I think it is interesting that IBM ‘had’ their own data mining software once upon a time, but didn’t grow it, and have now made the choice to buy their way back into the marketplace. As SAS Director of Technology Product Marketing, Anne Milley, puts it: SAS has always been focused on helping customers extract truths from data with analytics -- analysis is our middle name. Others are realizing the value of analytics, as reflected in this acquisition and in the interest around R and other analytical capabilities.

Analytics matter now more than ever! Clearly, or IBM wouldn’t have spent so much money to get back on the bandwagon.

Manya Mayes
SAS

Aug 03 04:29 PM

[dusadrian:]

Sooner or later, given the huge interest around R, a proper interface will appear. From that moment on, riding on any database engine (e.g. Oracle), I believe R is going to put the other competitors out of business.
SPSS has already fallen, next is SAS and Stata will ultimately have to surrender as well.
My 2c,
Adrian

Nov 11 06:02 AM