Big(ger) Blue: IBM Acquires Unica for $480 Million

By the time IBM President and Chief Executive Officer Sam Palmisano announced on May 12 that his company had earmarked $20 billion for acquisitions through 2015, the technology giant had already been acquisition-happy for more than a year, with application-related purchases of Initiate Systems, SPSS, and Cast Iron Solutions, among others. 

In fact, since Palmisano's announcement, IBM's acquisition team has gone into overdrive, snapping up Sterling Commerce, BigFix, Storwize, Coremetrics, and, most recently, Datacap — so the announcement Friday that IBM had made yet another purchase came as no surprise to industry analysts.

The latest IBM target, however, is not like the others: The $480 million offer for marketing solutions provider Unica is expected to position IBM as a major player in marketing management.

"Those guys [at IBM] got bucks," says Paul Greenberg, president and founder of consultancy The 56 Group. "And they're willing to spend them."  

[Editors' Note: Click on the following links for CRM magazine's coverage of the acquisitions of Sterling Commerce, Coremetrics, Initiate Systems, SPSS, Cast Iron Solutions, and Datacap.]

"Marketing professionals throughout the world are challenged to meet the priorities of the business and CEO," said Craig Hayman, general manager of IBM Industry Solutions, via conference call. "More than three-fourths of these professionals are concerned that they don't have enough understanding of their customers. Almost half of them believe they need to be more effective in understanding the customer segment."

What was of great interest to IBM, Hayman explained, was the ability to help businesses get beyond merely budgeting for marketing and to help them actually realize a return on those investments. "When we looked to find out who the market leader was, we discovered it was Unica," he said.

[Editors' Note: Anecdotally, at least, there may be some support for that presumption. See CRM magazine's 2010 CRM Market Awards, in the August 2010 issue, in which Unica is named the winner of the marketing solutions category.]

The acquisition signals that IBM is taking marketing seriously, according to Forrester Research Senior Analyst Joe Stanhope. "There were hints of it with the Coremetrics acquisition," he says, "Traditionally IBM has been very [information-technology]–focused. But spending this kind of money on Unica shows that IBM is really serious and they see marketing as a growth opportunity for their business."

The Unica acquisition expands IBM's industry software solutions portfolio. The company's goal is to help companies automate, manage, and accelerate core business processes across marketing, demand generation, sales, order processing and fulfillment, according to a company press release. Unica's capabilities, coupled with Sterling Commerce and Coremetrics's tools, will "enhance IBM's ability to support customers's increasing demands in this growing market," the release said.

IBM will attempt to use its global reach to help Unica expand its influence to emerging markets. "Unica today derives a bulk of their revenue from the US and established markets in Europe," said Hayman. "IBM today is driving more than 20 percent of our revenue from emerging markets. We believe we can bring Unica to these growth markets."

The purchase follows a typical pattern of acquisitions for IBM, wrote Allan B. Krans, senior analyst at Technology Business Research, in a blogpost. IBM traditionally focuses on increasing its software revenue base with low-risk acquisitions, and because Unica brings more than $100 million of annual revenue into the IBM fold, the risk appears to be minimal.

"This [acquisition] is wholly unsurprising," wrote David Raab, principal at Raab Associates, in a blogpost. "As the last and only big independent left in its space, Unica was obvious acquisition bait. It was also a motivated seller, since it faced an increasingly impossible struggle to fund the product enhancements necessary to compete with the likes of SAS, Teradata, and Siebel/Oracle."

Raab predicts that marketing automation vendors such as Eloqua, Silverpop, Aprimo , and Marketbright are next in line to be bought.

Jonathan Block, vice president and service director at SiriusDecisions, also foresees the acquisition having a domino effect. But he thinks the list of candidates for acquisition might be smaller than Raab's.

"The real question is," Block asked in his blogpost, "will those seeking to acquire a similar vendor buy one that offers the full complement of operations, analytics and marketing automation platform capabilities such as Aprimo or Neolane, or one that focuses on the marketing automation platform side such as Eloqua, Marketo, Silverpop or Manticore Technology?"

No one can be sure how many similar acquisitions will follow, but Scott Olrich, chief marketing officer of Responsys, a provider of business-to-business e-commerce solutions, says that the acquisition of Unica validates the fact that advanced marketing solutions are a must-have for companies of all sizes.  

"Companies in this space are able to command a real premium in the financial world," Orlich says. "As a leader in this space, we at Responsys, are excited to see yet another important milestone validating the importance and growth of the multi-channel/cross-channel campaign management category."

“IBM’s intention to buy Unica is exciting although not suprising to me,” says Phil Fernandez, president and CEO of Marketo. “While we don’t directly compete with Unica, we believe that the merger and acquisition activity in this space is evidence that marketing automation and enterprise marketing software are very much alive and thriving in the marketplace. Unica’s focus on marketing analytics is surely one of the reasons IBM is interested in the acquisition, and we believe that marketing analytics is an untapped area of the marketing software market.

IBM's move into marketing automation is extremely significant; but does it signal even bigger news on the horizon? Ray Wang, partner of Enterprise Strategy at Altimeter Group, wonders whether the acquisition is really about customer experience. He predicts IBM's next move will be the purchase of a social media platform.

"I think social is next," Wang says, "because it's not that IBM is into CRM, it's that they're into customer experience. That's what they're going after and the next step logical step would be in social."

Greenberg agrees. Since IBM already has pure play social technology in Lotus Connections, a technology that is primarily based on building internal communities, coupling a social platform with Unica and Coremetrics would provide the missing piece that could link Unica, back-end Coremetrics, and Lotus Connections.

"If IBM is thinking of a fully-integrated social business," Greenberg says, "then the social CRM piece is something that would make sense for them."  

Kim Collins, managing vice president at Gartner, could also envision a social acquisition. Because social CRM companies are still small, IBM wouldn't have to spend as much money as they did for Unica. But the real challenge, she argues, is that the social CRM market hasn't been well-formulated yet. Would IBM go after a tool in sentiment analysis, marketing, maybe sales?

"It's a bit riskier [than the Unica acquisition] in many ways," Collins says, "because it's not clear who the strong players will be. To date IBM has chosen more longer-term and stable candidates."  

IBM will likely wait to purchase software to complement Unica's technology until after Unica's shareholders approve today's transaction. If the transation is approved, Unica's 500 employees will be integrated into IBM's Software Solutions Group. 

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