In the aftermath of IBM's
announcement of intent to buy Ilog, it would be all too easy for us to reflect
back on a
conversation with Ilog's CEO Pierre Haren last winter at its annual user
conference covering survival in the software industry. Haren's description of
the typical life of a software vendor is that first you get a handful of successful
references, then replicate to at least 20 to 30 successful accounts, then you
start thinking about what your company wants to do when it grows up. Start specializing
your solution for vertical sectors or other specialized sectors of the market,
or you must change your role and move on. Haren's implicit message: eat, or
We won't take the cheap shot about IBM swallowing up Ilog, because this deal
makes too much sense.
Having been partners in one way or another for about a dozen odd years, both
companies know quite well that Ilog's business rules engine fills a key gap
in the WebSphere Process server BPM line, and most notably, that we saw IBM's
SOA strategy VP Sandy Carter keynote Ilog's conference. IBM's not going
to haul out the big guns for any sub-$200 million software company.
Ilog has had a case of multiple attention disorder for a number of years. Otherwise,
how could you explain that a company of Ilog's size would have not one or two,
but three separate product families that targeted almost completely different
markets? Or that a $180 million company could support 500 partners? Ilog was
best known to us and the enterprise software world as one of a handful of providers
of industrial-strength business rules management systems. That is, when your
rules for conducting business are so conditional and intertwined, you need a
separate system to keep them from gumming up into a hairball. That condition
tends to typify the world's largest financial institutions. That's enough for
But Ilog had two other product lines, one of them being an optimization engine
that was OEM'ed to virtually every major supply chain management vendor, from
SAP and Oracle to i2, Manugistics, Manhattan Associates and others. And by the
way, it also had a cottage industry business selling visualization tools to
So how do all these pieces fit together? Just about the only common thread
we could think of was the case of a supply chain customer that not only uses
the optimization engine, but has such a complex supply chain that it needs to
manage all the rules and policy permutations separately. And, not to leave loose
ends untied, it needed a vivid graphics engine so it could visualize supply
chain analyses to conduct better exception management.
Suffice it to say, that is not why Ilog had three separate business units.
The company happened to grow satisfactorily, showing profits for seven straight
years, so that it never had to face the uncomfortable question of refocusing.
Had it stayed independent, it might have had to do so; while revenues grew roughly
$20 million this year to $180 million, profits sank from $4.9 million last year
to a paltry $500k this year. Blame it on currency fluctuations (based in France,
Ilog would have had to discount in the US to keep customers happy), not to mention
the mortgage crisis that has cratered the financial sector.
The good news is that Ilog is a great fit for IBM. Its rules engine adds a
piece missing from WebSphere Process Server, and in fact has excellent synergy
with a raft of IBM products that start with Business Events (apply sophisticated
rules to piecing together subtle patterns emerging from torrents of data), FileNet
content server, WebSphere Business Fabric (the old Webify acquisition, providing
frameworks for building vertical industry SOA templates), and the list goes
on. And that's only the BRMS part. IBM Global Business Services and its Fishkill
fab are customers of Ilog's optimization engine, while Tivoli's Netcool node
manager uses Ilog's visualization.
The sad part of the deal is that the acquisition will likely abort Ilog's interesting
foray into Microsoft's Oslo vision, where it provides the business rules underpinning.
Even if IBM wants to maintain the business, I'd be surprised if Microsoft followed
suit. Ilog went to the effort, not simply to port Java-based JRules, but write
a fully .NET native product. That's analogous to what happened with Rational,
whose Microsoft Visual Studio partnership originally dwarfed its ties with IBM.
Taylor says that the acquisition portends the end of the rules management
market as it will likely set off a wave of consolidation by major application/middle
tier vendors. CIO
UK's Martin Veitch adds that "IBM is continuing to dance around the
margins of enterprise applications" with the Ilog deal. We'd agree, just
as with the previous acquisition of Webify and the bulking up of WebSphere Process
Server, that it's
getting harder to see where tools leave off and applications pick up. In
an era where all these pieces become service-oriented and theoretically composable,
maybe that's irrelevant.
Veitch takes issue with the broader implications for IBM and Oracle -- that
"these companies have become planets to be explored rather than recognizable
fiefdoms of even 10 years ago," and that "a lot of people are unimpressed
by the levels of integration and R&D that follow the incessant deal-making."
Well, part of that may be to satisfy Wall Street, but the march toward agglomeration
has become something of a self-fulfilling prophecy. That is, a $500 million
software company is no longer considered large enough to be viable, and so if
customers are afraid for vendor survival, that reinforces the trend for IBM,
Oracle, SAP, and Microsoft to gobble up what's left. That's a larger issue that
gets beyond the pay grade of this post, but ironically provides subtle reinforcement
of what Haren told us roughly six months ago: that once a market gets to the
billion dollar or so level, that it becomes prey for "bottom fishers"
that push niche providers back into their niche.
About the Author
Tony Baer is a Senior Analyst at Ovum, covering application lifecycle, SOA, and IT Service Management. Tony is a well-published IT analyst with over 15 years background in enterprise systems and manufacturing. A frequent speaker at IT conferences, Baer focuses on strategic technology utilization for the enterprise. Baer studies implementation issues in distributed data management, application development, data warehousing, and leading enterprise application areas including ERP, supply chain planning, and customer relationship management. As co-author of several books covering J2EE and .NET technologies, Baer is an authority on emerging platforms. Previously chief analyst for Computerwire's Computer Finance, Baer is a leading authority on IT economics and cost of ownership issues.