Reaction: IBM-Ascential Deal A Winner

The $1.1 billion all-cash transaction, expected to close during the second quarter of the year, also gives Big Blue a cash-rich organization whose products -- reengineered for a services-oriented architecture world -- will help IBM grab an even-greater share of a rapidly expanding market.

"This acquisition is all about growth," said Jeff Jones, director of Information Management Strategy for IBM, Armonk, N.Y. "Today, 40 percent of all IT budgets are spent on integration, and IDC says the data integration market will reach $13.6 billion by 2008. Given that kind of demand, we thought we should get our portfolio fleshed out more rapidly."

According to Mark Register, chief marketing officer of Ascential, Westboro, Mass., strong demand translated into 46 percent year over year revenue growth in 2004. "That was the driver for IBM looking at Ascential," said Register. "What's more, about 65 percent of our license revenue was influenced by our channel partners. IBM and Ascential are both very channel- and partner-friendly."

With Ascential, IBM gains new products aimed at the needs of data warehouses. Its software handles meta-data management, data profiling, data cleansing and high-speed, high-volume data migrations -- capabilities that are especially useful when crafting business intelligence systems. In contrast, IBM's WebSphere Information Integrator focuses on realtime, federated queries -- allowing users to glean data from different data sources -- and on event-driven data.

"This acquisition makes all the sense in the world," said Don Geier, CTO of MSI Systems Integrators, an IBM integration partner based in Omaha, Neb. "Ascential's is a more mature set of warehouse services than IBM's. Plus, Ascential has kept its products in step with changes in the delivery of information, so that customers can present their information as services. That fits perfectly with IBM's On Demand strategy."

Market and financial analysts agree with Geier's assessment. Judith Hurwitz, president of Hurwitz and Associates, described the deal as "very good for IBM, and makes a strong portfolio even stronger."

Now the question remains: What happens to the rest of the data integration market. Oracle, SAP and Microsoft either already, or soon will offer products with similar capabilities. That leaves Informatica, of Redwood City, Calif., as the last remaining data integration pure-play of any significance. Last month, Informatica revealed its own product strategy for dealing with a rapidly shifting marketplace.

"On the positive side, Ascential's decision to accept a buyout offer from IBM will benefit Informatica's stance as the leading 'pure-play' data integration vendor. Ascential is known for its aggressive pricing in the field, and IBM's size and clout could help restore pricing power to the market," Merrill Lynch analyst Edward Maguire wrote in an investors report Monday. He said the deal also improves Informatica's standing with other ISVs that partner with the company for ERP and business intelligence projects.

This is certainly Informatica's position. The company refused to answer calls but did issue a brief statement Monday that said, in part: "...the market will continue to need an independent, open and interoperable solution to manage the complex task of enterprise data integration.... Given the strong customer demand for a vendor-neutral data integration solution, Informatica remains firmly committed to all our partnerships, including our long-standing relationship with IBM, to deliver that capability to our current and future mutual customers."

Still, the consolidation now characterizing this market has many wondering if Informatica could be the next acquisition target. Informatica saw 6.8 percent year-over-year revenue in 2004, with more than $104 million in losses. "I predict Informatica will get a buyer," said Hurwitz. And if I were a betting person, I'd bet the buying company would be Oracle, since that's where their CEO [Sohaib Abbasi] came from."

Given Oracle's current attentions on Retek, it may be a while before Oracle cleans its plate enough to consider Informatica.