Why IBM Should not be Allowed to Acquire Software Companies

What This Article Covers

  • What happens to software vendors that are acquired by IBM?
  • How is the public interest served by continual IBM monopolistic practices?
  • What conflicts of interest does IBM have as it also provides advisement on software areas where it offers competing products?

Background on IBM’s Acquisitions

IBM is an enormous company that does a variety of things, however the majority of their revenue comes from enterprise consulting. This does not seem to be known by people outside of consulting how still associate IBM with mainframes or hardware services. They also own a large software suite. However, the way they use their software is not like ordinary vendors benefit from their software. IBM no doubt makes a good return from their software, but the main point of the many IBM acquisitions is to sell in IBM consulting services, which are their bread and butter. Their approach is documented in this very good article which has some of the following quote:

“IBM bills itself as a thought leader, but its real business is selling consulting services. To thrive, IBM account managers try to take control of a company’s IT strategy so they can keep pushing new products. Gaughan recommends taking a collaborative or partner approach.”

I have witnessed this behavior first hand as an independent consultant on projects and can say the author knows exactly what they are talking about.

What Happens to Acquired Vendors?

IBM acquires many software vendors, but the evidence is that these vendors gradually lose their relevance over time and that they move from being innovators to laggards in the marketplace. This is not actually that damaging to IBM because they only need their acquisition to be viable for a few years before they are able to make their money back with their lucrative consulting work, which is partially at least, based on their ability to acquire firms.

What Occurs

  1. For current customers of an application, they now are hit up by IBM salespeople, and their application costs increase.
  2. The investment in the software is diminished because IBM is not able to further develop the product very much, and in fact, that is not even IBM’s focus.
  3. IBM begins recommending whatever software they purchases through their consulting business. (how a major consulting firm can objectively recommend products which it sells and maintain its objectivity is difficult to understand)

The Public Interest

The problem with all of this is that its very difficult to see how this benefits anyone but IBM. The determination of what companies can merge is a question for the government and must pass a standard of public interest benefit, or at least that is the official story. For instance the recent attempt by ATT to acquire T-Mobile was not allowed because it could pass a public interest test. ATT wanted the enhanced market power of T-Mobile, but is not interested in submitting to the type of regulation which prevent ATT from gouging customers that would have fewer placed to turn. In fact, generally the government is, in my view, far to lenient on allowing mergers as few mergers actually benefit the consumers or buyers of a product or service. However, these companies are major financial contributors. Interestingly with all the rhetoric about competition, few companies seem willing to compete, and want to grow through agglomerations and concentrating their market power with other companies.

Policy Perspective

Form an enterprise policy perspective, there is an obvious problem with allowing a company to acquire software vendors that it uses to enhanced its monopoly position particularly when there is a tie between a business that partially performs advisement (IBM Global Services) and selling software. It also has a negative effect on innovation in the software marketplace. The product CPLEX is a good example of this problem. CPLEX is a general optimizer that is used as a standalone product, but is also incorporated into many enterprise software applications. For instance SAP’s supply network and production planning modules are powered by CPLEX. However, now that it is owned by IBM, CPLEX has been captured, and I am hesitant to recommend CPLEX to a client because it comes with all the IBM overhead and manipulation of and IBM account manager that is trained to “penetrate and radiate the client.”

This is bad for clients and a waste because it means that my investment into CPLEX is diminished because it is no longer an independent company, and furthermore little future development can be expected from CPLEX. This problem is repeated with any software which IBM acquires, and they have a very large number of acquisitions in their stable. I have a number of good relationships with best of breed supply chain vendors, and if any of them were to be purchased, my relationship with them would probably end as they would then be mired in the bureaucracy of IBM. I cannot in good conscious recommend a product owned by IBM because this allows the “camel’s head into the tent.”


Mergers should be allowed where there is more than simply the improvement to the condition of the acquirer. IBM thinks very highly of itself and continually touts its research capabilities, however, if they are thought leaders why is it that they cannot develop software internally and must continually buy best of breed vendors? Buying companies based upon proceeds from another business, simply to benefit the consulting business is bad from an enterprise policy perspective. For this reason, it makes zero sense to allow IBM to acquire companies. If IBM is good, they would be able to compete in the software business without these acquisitions.

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