IBM Bolsters ‘Smarter’ Initiatives with Two Software Acquisitions

December 12, 2011 Alex Woodie

IBM last week announced plans to acquire two software companies, including DemandTec, a provider of software that helps retailers make pricing, promotion, and assortment decisions, and Cúram Software, which makes software used by governments to streamline the delivery and administration of social services.

IBM exited the ERP space years ago and has since professed an aversion to getting back into the core business application space, which it insists it is leaving to its business partners. On its IBM i server platform, for example, IBM partners with dozens of ISVs, like Infor, SAP, JDA Software, Manhattan Associates, Kronos, VAI, Jack Henry & Associates, and even Oracle‘s JD Edwards, who write core business applications for specific industries.

Despite its aversion to ERP–a catchall software category that refers to everything from manufacturing and retail systems to banking and healthcare platforms–back-office business logic has had a way of creeping in through the backdoor for IBM, which shouldn’t be surprising for a company named International Business Machines. Its 2010 purchase of Sterling Commerce, for example, netted IBM the Selling and Fulfillment Suite, a Java-based logistics application that competes with software from specialty logistics makers and the Big Three (Oracle, SAP, and Infor).

The announced (but still uncompleted) acquisition of DemandTec will complement the Sterling logistics acquisition and software by delivering analysis of customer buying trends to retailers and their suppliers. DemandTec’s software, which is provided over the Web (i.e., “the cloud”), helps sellers spot consumer patterns as they emerge on the Internet and in physical stores. Or as DemandTec puts it, “We’ve developed unique ways to bring shopper-centric science right to the point of decision.”

Armed with actionable information–for example, that the spring shopping season in Seattle will start seven weeks earlier in 2012 due to warmer-than-normal weather patterns showing up in the long-range forecast–sellers can quickly make pricing or promotion adjustments, or change the mix of products, all with the goal of driving bigger revenues and profit. (The weather, with its huge impact on whether people will jump into their cars and go buy stuff, appears to be a favorite topic for DemandTec.)

This is the kind of activity that IBM is pushing in its Smarter Commerce strategy, and so DemandTec will fit right in. IBM probably doesn’t gain many net-new customers, seeing as many of DemandTec’s 450 customers (including big retailers like Best Buy, Ace Hardware, Petco, Target, Office Depot, Wal-Mart, and Safeway, and big consumer product manufacturers like Dannon, General Mills, Foster Farms, Heinz, Hershey’s, Nestle, and Sara Lee) are already IBM shops. (In fact, a good number of them are IBM i customers, or at least have run IBM i ERP systems in the past.)

IBM plans to buy DemandTec for $13.20 per share, or $440 million after adjusting for cash. Revenue for the San Mateo, California, company was about $82.4 million last year, up from $61 million for fiscal 2008, when it went public on the NASDAQ. Losses have widened from about $4 million in 2008 to $13 million last year. DemandTec hasn’t made a profit yet, but that apparently didn’t deter IBM, which is keen to be seen as a leader in cloud computing.

Meanwhile, IBM’s acquisition of the privately held, Ireland-based Cúram Software will provide a boost to IBM’s Smarter Cities initiative.

Cúram (a word that means “care and protection” in Irish Gaelic) makes software that allows cities and governments to provide citizens with a single view of social services and benefits available across different governmental agencies and private and not-for-profit organizations. The software helps to ensure that citizens are presented with the most appropriate social options (such as welfare and insurance programs), and monitors the progression of citizens through the programs.

While the focus of Curam’s software is on helping governments help the needy, it uses cutting-edge business technology concepts in building its Social Enterprise Management (SEM) system, including the use of 3,000 best-practice business processes and rules, lifecycle management concepts, and flexible service delivery through data and application integration. The combination of doing good through advanced technology may have been too much to resist for IBM, which is a philanthropic leader in its own right.

As part of the deal, IBM gets the contracts for 80 government agencies around the world that are Cúram customers. The feather in IBM’s cap is the Cúram Research Institute in Dublin, which is tasked with developing new business models for managing social programs. As luck would have it, IBM just opened in Dublin its Smarter Cities Technology Center, where it works with government, university, and business leaders on finding new ways of making cities “more connected.” Now it can address some of the social aspects of connectedness in the same way it’s trying to upgrade metropolitan IT infrastructures and apply digital technologies where they have never existed.

IBM is very familiar with Cúram, as the two companies have partnered since 1999. More than 90 percent of Cúram customers run WebSphere middleware, IBM says, while more than 70 percent run on IBM hardware. The company’s software runs on Windows, AIX, Solaris, HP-UX, and z/OS operating systems, using either DB2 or the Oracle database and either WebSphere or Oracle’s WebLogic application servers.