What IBM Should Gain From Its Cast Iron Systems Acquisition

Includes: IBM, INFA, PVSW
by: Jeffrey M. Kaplan

IBM (NYSE:IBM) announced its intention to acquire Cast Iron Systems Monday, bringing to an end the long-standing parlor game of which integration tool vendor would be the next to be acquired after Workday grabbed Cape Clear in 2008.

This is an important endorsement of the importance of the integration tools market in general, and Cast Iron Systems in particular.

Integration is often listed as one of the top three concerns among IT and business decision-makers who are thinking about migrating to the ‘cloud’, along with security and reliability.

According to IBM’s software head, Steve Mills, Cast Iron Systems fit IBM’s acquisition criteria by offering “Adjacency” and “Synergy” that can enhance IBM’s capabilities and revenue opportunities in the following areas,

  • Websphere middleware

  • Process management services

  • Professional and hosting services

  • Cloud enablement solutions

The integration tools sector has been very competitive with Boomi, Hubspan, Informatica (NASDAQ:INFA) and Pervasive Software (NASDAQ:PVSW) recognized as the other leaders.

Cast Iron Systems has differentiated itself around its ‘appliance’ approach to integration. It has also established strong working relationships with Google (NASDAQ:GOOG) and Salesforce.com (NYSE:CRM). In fact, I saw a recent Salesforce.com presentation which identified Cast Iron Systems as its preferred internal integration vendor.

There have been rumors that Cast Iron Systems and the other major integration tool vendors have been in play for a while. This move eliminates one of the independent integration tools vendors and widens the market opportunities for the remaining players in this space by legitimizing the importance of integration in today’s environment.

The timing of IBM’s announcement coincides with its IMPACT 2010 conference in Las Vegas where IBM is hosting approximately 6,000 attendees including over 1,200 customers and 850 Business Partners. While this announcement will certainly be of interest to many of them, IBM’s other integration tools partners attending the conference will have to put on a good face while they’re asked why they weren’t the ones who were brought to the altar. In some cases, they may actually be gloating because they can still boast about their vendor-independence.

And, there should still be plenty of customer opportunities for IBM/Cast Iron Systems and the remaining independent integration vendors as decision-makers often fall into two categories — those looking for a single-source vendor vs. others willing to piece together best-of-breed elements.

Ultimately, acquisitions of this nature generally result in one of two outcomes — either it exponentially increases the market opportunities for the acquired company, or it creates too many internal distractions which ultimately derails its growth and momentum.

The energy and enthusiasm which I heard from the representatives of Cast Iron Systems and IBM, whom I spoke with after the companies’ joint videocast, suggests that they are in a good position to head down the right path with this transaction. Of course, the proof will be in how well they follow through with their promises after the euphoria of the intial honeymoon period wears off.

However, since this acquisition probably won’t noticably ‘move the dial’ in terms of creating substantial new revenue opportunities for IBM, it may be hard to measure its financial impact.

Therefore, it will be more important to watch how IBM blends Cast Iron Systems’ capabilities into the other elements of its portfolio to enhance its overall position in the market.

It will also be interesting to see how often IBM’s Global Services group continues to turn to other integration tools partners to demonstrate to its customers that it is still product-independent.

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