Apple And IBM - Connecting The Dots, Part 1: The Benefits

Jul.17.14 | About: Apple Inc. (AAPL)

Summary

Apple and IBM have announced a new partnership.

A series of products/services to merge iOS devices with big data analytics.

Why this is positive for IBM.

Why this is positive for Apple.

Apple (NASDAQ:AAPL) has risen significantly over the last several months, after having spent a year retracting from its all time high of September 2012. Now it is edging up to that high once again. Yesterday came some surprising news that might well push it over.

First I will discuss the aspects of the announcement, then in the Analysis section, I will explain why I think this is so important for both Apple and for IBM (NYSE:IBM). While other articles focus on past rivalries between the two companies, I will focus on what this extraordinary partnership will mean for the two companies.

Announcement

Apple has just partnered with IBM to deliver a set of mobile solutions for the enterprise that will encompass:

  1. Specific big data mobile applications,
  2. A new iOS tailored cloud service,
  3. New enterprise level AppleCare support services from Apple, and
  4. New package from IBM for mobile device management

Apple CEO Tim Cook remarked in a CNBC interview:

I think it is absolutely huge. It's landmark…

To deliver the promise of mobility in a big way - that takes Apple and IBM doing it.

Click to enlarge

Source: IBM website

Applications

The idea here is that IBM and Apple are working together - they have created joint development teams - to create new, industry-specific applications that integrate IBM's big data backend solutions with iPhone and iPad front end systems.

The press release noted:

The combination will create apps that can transform specific aspects of how businesses and employees work using iPhone and iPad, allowing companies to achieve new levels of efficiency, effectiveness and customer satisfaction-faster and easier than ever before.

The intent, says Tim Cook, "Taking big data analytics down to the fingertips."

Over 100 new applications will be rolled out beginning this fall and extending into next year. Virginia Rometty, IBM CEO, gave the example of an app for airlines that would access big data analytics for fuel to guide pilots as they decide exactly how much fuel to load for a given flight.

IBM's page states:

Right now, engineers, designers, and developers from both organizations are working on more than 100 end-to-end mobile solutions, including a new category of mobile apps, that are ready for the enterprise.

Each will address a specific industry need and is being designed from the ground up with cloud software services for analytics, data security, and device management native to iOS.

By bringing together the analytics and enterprise-scale computing of IBM with the elegant user experience of iPhone and iPad, this partnership will deliver a new level of value for businesses.

Cloud

On the new cloud service for iOS, the press release states:

The IBM MobileFirst Platform for iOS will deliver the services required for an end-to-end enterprise capability, from analytics, workflow and cloud storage, to fleet-scale device management, security and integration.

It seems that what they are doing here is providing a kind of private iCloud service. This will allow a company's iDevices to sync with their own private servers instead of with Apple's. This keeps all their data in-house.

It should be noted that Apple now provides a software set of tools called CloudKit that allows the application programmer to store user data in iCloud. It also allows the programmer to create iCloud hosted databases. It seems that this technology may be based on what IBM is now offering. My guess is that they developed in conjunction with IBM for their new MobileFirst for iOS, then decided to add it to Apple's service.

Enterprise AppleCare support services

Apple will now offer a new Enterprise Level support via their AppleCare contract service. It provides for full 24/7 phone support, and on-site support, which will be provided by IBM technicians.

IBM Mobile device management

This is a set of tools described as:

End-to-end procurement and lifecycle management services allow employees to manage their own mobile devices.

Managing a large number of devices is extremely difficult, and virtually impossible without good tools. You need to know each device, its owner, its configuration, what software is installed, etc. One gripe from IT folks is that Apple products are difficult to manage in this area. They do not use the same tools that Microsoft (NASDAQ:MSFT) does, and so it's extra work. This IBM program appears to be an answer to that.

Security

Rometty noted that there were three main objectives of the collaboration:

  1. Growth for both companies.
  2. Remaking business - unlocking mobility in the enterprise
  3. Address the biggest inhibitor - security

Here is an area in which both companies are working hard, as the growth of malware and cyber attacks on infrastructure abound. The question of security is one of the biggest issues for mobile devices such as the iDevices. But here is where IBM is very strong.

  • By working together, particularly on security, they will generate a very strong hold on the enterprise market, which will severely disadvantage all other players.

Note BlackBerry's (NASDAQ:BBRY) drop Wednesday (almost -12%).

Analysis - IBM

At first glance, the benefits to IBM may seem unclear, outside the association with the Apple name. However, there really are several. It should be noted that IBM's performance has not been exactly stellar for the last two years, with the stock price essentially flat over that time, as has been revenue (Business Insider).

In another report, BI writer Julie Bort concludes:

The downside, IBM can't take too long. Every big IT player is jumping into the cloud computing market, Cisco and Oracle included. Meanwhile Amazon, Google and Microsoft are in a cloud computing price war that will put pressure on IBM and the others to keep their own prices (and margins) low.

So what does this bring? By exclusively partnering with Apple, IBM will be providing the most complete, comprehensive, and secure solution to integrate with iOS.

Equally important, the 100+ solutions on which the two are collaborating will likely be very creative products that will put them far ahead of any other company. This is a lot of apps, and none of them trivial I am sure. This is going to touch a lot of different industries in a very impressive way. You can look forward to Cook introducing some of these to great fanfare at the iPhone and/or iPad announcements. Certainly one or two will be featured at the presentation, and they will be very slick.

Additionally, the new cloud service will bring significant business to IBM, both for their cloud service and hardware for those who may want to host locally. Additionally, this will promote their other cloud services. So this is a big win for them.

Analysis - Apple

For Apple this is also a win. Tim Cook noted in the CNBC interview:

We are in 90% of the top enterprise but penetration is low. So there is a huge opportunity here…

We are doing some of this in business today - but arguably there is a new level.

Devices running Android by Google (NASDAQ:GOOG) (NASDAQ:GOOGL) are increasing in number, and taking market share from Apple. While a lot of these are low-end devices, some are of reasonable quality, but at a lower price. Additionally, the larger smartphones and phablets seem to have put a real dent in iPad sales. This partnership can be seen as an attempt by Apple to stop this slide.

In my years of blogging, and before that commenting on posts, one of the gripes from business IT folks that I came across most often, and seemed to me to be most legitimate, was that of the lack of real business level support from Apple.

Here Apple will make out big. While they will provide elevated support online, they will immediately have thousands of technicians available to do on-site service. And these are service people who already know their customers. This is something that could not be duplicated without investing years to build it up.

Macs

Left out of all this is Apple's Mac line of computers. One has to wonder if the relationship will grow to include Mac support by IBM service personnel. Even if it does not, the influx of iDevices will only continue the growth of Macs in the workplace. Think of the new Continuity features of the upcoming Yosemite release of Mac OSX. These will make using a Mac even more compelling.

Conclusion

The just-announced partnership of Apple and IBM is really going to shake up enterprise computing. The software products that they are about to release will probably be astounding, and they have answered most of the objections of the IT and COO people. The two together form a real synergy, and this should benefit both companies. It could very likely turn out that this is indeed a "landmark" partnership, as Tim Cook terms it.

In a companion article, I discuss some other possibilities I see as part of this collaboration.


Resources:

Apple And IBM - Connecting The Dots, Part 2: Hidden Implications

WWDC - Hidden Implications

Microsoft Surface Pro 3 vs. Apple iPad/MB Air - Make your own analysis

Apple's A8 processor - what it will mean and why

Disclosure: The author is long AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.