Duel rationale for IBMs Rational acquistion

When IBM agreed to buy software tools vendor Rational in a $2.1 billion deal in December 2002 – its biggest acquisition since it bought Lotus Development Corp in 1995 – two explanations for the proposed deal were put forward.

The first is all about strategy. IBM is not only getting its hands on a number of popular software tools, but also buying itself an entree


Company name: IBM Software Group

HQ: Armonk, New York

Main activity: Enterprise software

Last full year revenues: $12.9 billion

Last full year net profit/loss: Not disclosed

Key issue: IBM’s purchase of Rational will fill a number of gaps in its application development software ‘stack’. But some Rational customers and partners may be wary of IBM and prefer other suppliers.




into the emerging technology of application life-cycle management, which many analysts are touting as the future of application development.

For IBM, this is particularly important because of its strategic roll out of a unified application platform, supporting the whole application infrastructure throughout its life (see feature article, Back to Blue).

The second reason is more straightforward. With $1.1 billion in cash, and a market valuation of around $2 billion – more than 80% off its peak – Rational was ripe for acquisition.

Gartner vice president and research director Michael Blechar points out that IBM relies on Rational to provide so many critical elements of its application development software stack that it had to buy it – in case it fell into the hands of a competitor.

Both explanations are probably true. With forecast sales of some $628 million for its 2003/4 financial year, and a return to profitability expected, Rational was undervalued, especially given its strategic importance. Equally, Rational’s products are a perfect strategic fit for IBM.

“The status quo is that you build an application and then throw it over the wall to someone who has to deploy it. You never test it in a production environment and you don’t design it for deployability,” says Forrester Research analyst Ted Schadler.

In contrast, application life-cycle management is an approach to development that encompasses every stage of design, coding, deployment and ongoing maintenance of a custom developed applications. It is particularly suited to the development and deployment of web services, which will often involve applications being continually changed after they have been deployed.

Life-cycle management requires an entire ‘stack’ of developer tools, tied together in such a way that smoothes the application’s pathway from the initial modelling through to roll-out and ongoing management.

“If you talk to IBM executives, they believe a significant sea-change is going to happen in development tools, where you will have developers being able to know the impact of a development decision on deployment. The only way you can do that is with an end-to-end tool set,” says Schadler.

It was with this in mind that, for example, Borland acquired BoldSoft, Starbase and TogetherSoft in October 2002 and Rational itself bought NeuVis in August 2002. Microsoft is also fleshing out its development tool-set to encompass such concepts.

But as a result of its patchy software tool line-up, IBM risked being left behind.

With Rational, the systems giant has picked up a number of products that are key to building an application life-cycle management suite and that are also largely complimentary to IBM’s own software tool stack.

First is Rational Rose, a modelling tool that helps developers to design models of how the application should work, which can then generate up to 60% of the application’s underlying code. Rational claims that this enables non-technical staff to have a greater input into the development of applications.

Second is XDE, Rational’s integrated development environment based on IBM’s own Eclipse code that was released to open source in 2001. Third, is the range of configuration management and testing tools that IBM already ‘co-sells’ with Rational through its own channels.

Finally, there is the Rational Unified Process (RUP), a software development methodology that brings together Rational Rose and other software tools into a unified team development process. This is supported by portal technology that provides users with access to a customisable knowledge base and also assigns responsibilities and tasks to development team members.

RUP is particular popular with major services companies such as Cap Gemini Ernst &Young. CGEY chose it over its own E&Y-developed Navigator tool, and uses it for development in offshore centres, particularly India.

Schadler of Forrester warns that application life-cycle management software today “is not very sophisticated” and that it could take the best part of a decade before the technology is suitably refined.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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