IBM shoots for development dominance

At IBM Rational’s developer conference in Orlando in early June 2007, the general manager of IBM’s software development and application lifecycle management Danny Sabbah, was keen to present the company’s credentials as a thought-leader and innovator.

He spoke of software development in a Web 2.0 world, showcasing IBM Rational’s new Jazz platform, an Eclipse-based online collaboration tool for programmers. He described how the organisation has used the virtual online world Second Life to connect with the development community.

In the end, however, it has been a far more old-world technique that has seen IBM Rational cement a dominant market position: buying the opposition.

In early June, IBM Rational revealed it had agreed to acquire Swedish application development toolmaker Telelogic for SEK5.2 billion ($745m). This not only snares a growing revenue stream – Telelogic’s licence sales grew by 20% in 2006, driving total revenues to $208 million – but it also secures some highly regarded development applications, such as requirements management tool Doors and business process mapping tool Systems Architect.

And although these products overlap with IBM Rational tools, their customer base is fairly static and constrained along vertical industry lines, so IBM is unlikely to cannibalise its own licence revenues with its pledge to continue the Telelogic brand.

But analysts agree that it is Telelogic’s reputation and customer base in the embedded systems development tool market which will prove most valuable.

Here, system reliability holds high currency, and Telelogic’s impressive roster of clients in the telecommunications, aerospace and automotive industries – including BAE Systems, BMW and Vodafone – points to a proven track record in the reliability stakes.

IBM Rational, meanwhile, has not placed as much emphasis on that facet since IBM acquired Rational Software in 2003, although previously it had counted aerospace and automotive companies among its customers.

Technology market analyst Venture Development Corp (VDC), which values the embedded systems development market at around $51 billion annually, sees the acquisition as an explicit change of tack on the part of IBM Rational.

It is widely recognised that following its Rational acquisition, IBM’s “focus on, and dominance within the embedded device market had deteriorated,” notes Matt Volckmann, senior analyst, VDC. “However, the [Telelogic] acquisition signals a change in IBM’s tactics.”

And while the acquisition strengthens IBM’s application development strategy, it may also provide the springboard for a push further into application lifecycle management, dynamic system design tools and product portfolio management, says Volckmann. Rivals should beware, he adds.

Further reading

UPDATE EC investigates IBM’s Telelogic buy

Progress’ steady development – February 2006

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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