On Friday, 7 December 2018, HCL Technologies announced the decision to acquire IBM software products for a total of USD 1.8 billion. Expected to be closed by mid-2019, the company is touting to target a total addressable market of USD 50 Billion via the acquisition of the following IBM products:
- Appscan for secure application development,
- BigFix for secure device management,
- Unica (on-premise) for marketing automation,
- Commerce (on-premise) for omnichannel eCommerce,
- Portal (on-premise) for digital experience,
- Notes & Domino for email and low-code rapid application development, and
- Connections for workstream collaboration.
First things first, IBM’s decision to sell its software is not surprising, and that should worry the new owners, HCL Technologies.
Some of these products came to IBM via acquisitions decades ago, and despite its multiple attempts, they weren’t able to move the needle. An excellent example of this is the launch of IBM Verse that was a failed attempt to revive Notes on the back of new-age user experience (UX).
While HCL Tech’s decision to buy these products is undoubtedly a sweet deal for IBM that will be able to recover the money spent on these products, let’s not forget, if these products were indeed doing well within the IBM schema of things, then the company would have never decided to sell them in the first place.
Having said that, this is HCL Tech ‘s earnest attempt at reviving growth but the one that is riddled with baggage.
The decision by HCL Technologies to acquire software from IBM is part of the company’s attempt to be IP driven and drive growth on the back of it. While in theory this bold move is a step in the right direction and supposed to act as a shot-in-the-arm for HCL, but the ground reality is that these IBM products come with a ton of baggage that can potentially throw a spanner in the works.
To be clear, baggage comes in two key forms – one, from the pains of products itself and two, the way these products have been sold to date.
More specifically, on the latter, important to note that most of these products have been sold on the back of the stable relationship with IBM, existing Strategic Outsourcing or a Managed Services contracts and the ability to convert CAPEX to OPEX thanks to IBM’s financing arm. Interestingly, since most of these products aren’t necessarily sold independently as a SaaS product, they don’t enjoy the customer recall as enjoyed by ace competition.
However, whether HCL likes it or not, customers won’t be chuffed and will need concrete evidence to stay put.
At Greyhound Research we believe for HCL Technologies to sell these products independently or under its banner, it will need to add serious ammunition in terms of integrations with other key third-party providers, soft licensing measures, the ability for these products to work across multiple cloud providers and most of all, the arms and legs to allow for easy deployment and ongoing management.
Important to note, this announcement comes at a time when the largest technology companies are investing in Open Source for the sole purpose of access to code and more importantly, to tap into skills given the large pool of community support. End-user customers are appreciative of such investments and beginning to expect forward-looking vendors to follow suit. Greyhound Research believes given the proprietary nature of the acquired software, HCL will need to build capabilities that allow customers to use their existing licences with other open-source based applications. Also, customers will need for the company to prove its focus in a culture that promotes the use of code and keeps Intellectual Property (IP) at the heart of Research and Development (R&D).
Last but not the least, given the rampant increase in the use of APIs and microservices, organisations are beginning to opt for an architecture that allows the use of best-of-breed solutions from a handful of providers who are experts in their respective domains rather than work end-to-end with a single provider. Given this premise, important for HCL Technologies to display enough and more evidence to end-user customers that they truly understand and have depth in areas spanning as diverse as security to marketing automation. Worthy to note that the approach being used by HCL Technologies is a stark contrast to how its peers (chiefly Infosys and TCS) have chosen to focus on a few products like TCS BaNCS, Infosys Finacle among others.
Bottom line, while this is not a piece of news that will excite most of the existing customers of these products, HCL Technology can turn this in its favour if it offers concrete guidance on its commitment to code and R&D overall – an area that it is currently not known for. While HCL’s existing relationship with IBM for IP development for most of these products helps and is likely to soften the journey, but developing and scaling standalone SaaS products is a deal of its own and the one that will require a net-new approach from HCL Technologies.
Sanchit Vir Gogia: Sanchit is the Chief Analyst, Founder & CEO of Greyhound Research, an award-winning global research & advisory firm. To read more about him, click here.
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