Seeking Alpha
Long/short equity, value, growth, contrarian
Profile| Send Message|
( followers)  

Summary

  • Apple and IBM announced they will develop enterprise apps for iOS.
  • IBM and Monetise announced a few days later they will develop mobile banking apps through IBM's MobileFirst platform that supports all mobile devices.
  • Mobile banking is a huge opportunitY.

IBM (NYSE: IBM) and Apple (NASDAQ: AAPL) signed a deal that will see the two giants collaborate in creating more than 100 industry-specific enterprise apps. The deal has generally been well received by the media and the investing community in general.

Five days later, IBM announced an expanded partnership between it and Monitise, a U.K. based mobile banking solutions company, designed to create cloud-based mobile solutions for the financial services sector. Granted, this second IBM deal nearly went unnoticed and hardly received as much publicity as the Apple deal, which is perfectly understandable. But, when you peel back the hoopla surrounding the Apple deal, and delve deeper into the details of both deals, the deal between IBM and Monitise seems the right way to go.

Details of the two deals

IBM and Apple will collaborate to develop more than 100 enterprise solutions apps in different industry verticals, including native apps, exclusively for the iPhone and iPad. The apps will leverage IBM's cloud which will be optimized for iOS. Let's start with a positive note: Apple did well to partner with IBM in developing enterprise mobile apps. An August 2013 Gartner study rated IBM and SAP the enterprise mobility app development leaders.

According to a Citrix enterprise mobility report, mobile apps accounted for 6% of total enterprise apps in 2013, and the figure is expected to grow to 9% in 2014. The study found that 90% of organizations considered email apps the most important, with 52% saying line of business apps were important to them, and 48% saying enterprise file sync and share apps were crucial for their organizations. Organizations spent about $234.6 billion on applications in 2013. This in turn means that roughly $14 billion went to mobile apps, and the figure could grow to over $20 billion in the current fiscal year. That's a sizable opportunity for Apple and IBM.

Now to the not-so-good parts. Apple devices dominate the enterprise space, with a 59% share of the market (including education and government buyers), according to IDC. The apps being developed by IBM and Apple will potentially address 59% of the enterprise market, and leave 41%, or a potential $8 billion market in fiscal 2014, out in the cold.

Security concerns are the biggest reason why enterprises shun Android in favor of iOS. But, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) revealed in June of this year that it intends to integrate Samsung's Knox directly into Android later this year. Knox has been the go-to security solution for Android users for a long time. With a major roadblock removed out of the way, it will not be too hard for Android to start growing its enterprise mobile market share from the current 25%. Throw in the far lower price points of Android smartphones, and it's not hard to see many small and medium businesses adopting Android at the workplace.

The proliferation of BYOD, or bring-your-own-devices, trend does not help matters either. Gartner predicts that by 2017, half of employers will require employees to bring their own devices to work. This means that Android devices will get a chance to rule the office since they already dominate the overall mobile landscape.

It would probably have been better for Apple and IBM to figure a way how to develop device-agnostic apps that can be used on all manner of mobile operating systems. This way the apps developed would address the entire mobility enterprise market rather than just zeroing in on iOS devices.

Now let's turn our attention to the IBM-Monitise deal, and find out why it might be a much better deal.

IBM-Monitise deal

The IBM-Monitise entente will leverage IBM's MobileFirst portfolio and Monitise's mobile banking and payments expertise. IBM's MobileFirst is a pretty wide set of mobile app solutions, including the PaaS BlueMix platform that contains a variety of mobile-ready SDKs and APIs.

MobileFirst has received accolades from eWEEK for its ability to extend IBM's powerful middleware and services into consumer mobile devices by adopting a device-agnostic mobile app development approach. The cross-platform mobile banking apps developed by the collaboration between IBM and Monitise will therefore be accessible on all mobile operating systems. That fact alone might probably give the apps a bigger reach than the iOS-centric apps.

At first glance, the fact that the IBM-Monitise apps will only address mobile banking, which is a niche market, seems to suggest that the potential market is not that big. But nothing could be further from the truth. A 2013 Juniper Research predicts 32% of the world's adult population, or 1.75 billion people, will use mobile banking in 2019, up from 800 million in 2014. Mobile banking is banking services delivers via mobile and web apps, excluding SMS banking. China leads the way with the top four Chinese banks commanding 352.1 million mobile banking customers. Mobile banking transactions in China totaled $768.8 billion in the first-quarter of 2014 alone.

Mobile-banking is therefore a rapidly growing sector and a big opportunity, too. Monitise is regarded as one of the top mobile banking solutions developers worldwide, and has a huge user base of over 23 million. Monitise shares jumped 4% when details of its partnership with IBM were announced.

Bottom line

IBM and Apple should probably have structured their mobile app deals to include other mobile operating systems the way IBM and Monitise will do. Apple being a mobile company probably does not have as much freedom in this regard as IBM does since it lacks a mobile OS. But, not supporting other mobile OSs might not be a very good idea because there is no guarantee iOS will continue to dominate the enterprise space for long.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was written by Alex Kimani, the chief analyst of Syncopy Research. We are not receiving any compensation for this article other than from Seeking Alpha.

Source: Why The IBM-Monitise Deal Is Better Than The IBM-Apple Deal