IBM's Corio Buy: What's In Store For Midmarket Partners?

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Why would IBM agree to pay $182 million for a company that has reported consecutive yearly losses throughout its entire life span? Yet that financial description fits Corio, a pioneer in delivering enterprise applications over the Internet, which IBM said last week it will acquire for its hosted business run by IBM Global Services.

"Corio has a great team of professionals in their data centers and a management team who understands these hosted applications and knows how to make them scale," said Mike Riegel, director of On Demand for IGS. "Essentially, what we're buying is Corio's tools and people."

Big Blue is also buying an application hosting company that, through a network of 28 systems integrators, targets midmarket customers. Now the question arises: What
will happen to these partners when Corio becomes part
of IGS? "Those Corio partners serve midmarket clients, and we absolutely want them to become IBM partners
and keep doing exactly what they're doing today to serve our clients," Riegel said. "We want them as IBM partners, and we'll say more about this at PartnerWorld at the end of February."

IBM, Armonk, N.Y., declined to elaborate, leaving many Corio partners in a quandary. "As a Corio partner, we expect to be impacted, but it's too early to say what that impact will be," said Venkat Devraj, CEO of ExtraQuest, Greenwood Village, Colo., which provides database administration outsourcing services and autonomic technology. "Given the new relationship dynamics, I suspect the value to IBM will be with our administration technology rather than our services."

Marc Hebert, executive vice president of marketing and alliances at Sierra Atlantic, Fremont, Calif., is equally unsure. "There's the risk we could lose the business if IBM tries to bring it all in-house, and there's the opportunity that it could grow," he said. "I just don't know yet what that will be."

NaviSite, Andover, Mass., sees only opportunity. "For Corio, a $100,000-a-month customer would be big. IBM is accustomed to customers spending up to $1 million a month," said Denis Martin, CTO of the managed application provider, which competes against Corio in the midmarket. "[IGS] has challenges in their cost structure addressing the needs of small to midsize businesses. We see this acquisition as a good thing for us."

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