IBM executive explains company's buying spree

IBM has been on an acquisition spree, having recently snapped up DataMirror, a data management vendor in Markam, Ontario; Princeton Softech, a data archiving company in Princeton, New Jersey; and Watchfire, a Web application security provider in Waltham, Massachusetts. Computerworld US' Thomas Hoffman talked with Deborah Magid, director of software strategy at IBM's Venture Capital Group in Menlo Park, California, about the company's strategy.

How would you describe IBM's mergers-and-acquisitions (M&A) philosophy?

We use M&A as part of our software strategy. So whenever we look at the software business as a whole or a set of products; we look at what customers need, what we have or don't have, whether we should build products ourselves, build out functionality or buy something. Also, when we buy companies, we almost always buy companies we're working with so that you know what you're getting into.

How does IBM develop those relationships?

Usually through the IBM Partner program. Businesses evolve, so in cases where a partnering model may evolve, over time it may appear that it makes sense to buy the company instead of partnering with them.

In terms of software, how does IBM's acquisition strategy differ from Oracle or other competitors?

I think the key thing about our strategy is that we're looking for innovation wherever it can be found. It can be in a small company overseas or in our own labs. We've acquired tiny 10-person companies and deals north of a billion dollars. We're really bringing innovation in as part of innovation in our business.

Also, IBM has close relationships to entrepreneurs and to investors. We see a lot of young companies and innovative things ahead of the market, and we can advise our own business leaders about what [acquisitions] they might want to be interested in.

You represent IBM's software business in the venture capital group, where recent acquisitions have centered around Web application security (Watchfire), data management (Princeton Softech), data capture (DataMirror) and Web conferencing (WebDialogs). How do these acquisitions fit into IBM's product strategies?

In each case, these are capabilities that we're trying to bring into our products. The different brands are evolving over time. Take the data management business. In the past, information management in our business and others was about the database -- how you stored data and how you retrieved it. Now, it's more about how you mine data, how you analyze it, how you apply it to your business. A company like Princeton [Softech], which was purely storage-based in 2000, was moving into data governance like we were.

What are the hottest areas for IBM's software group right now?

Security has always been a hot area. That's true in the venture capital marketplace and in our own business. One of the reasons we bought Watchfire is that the security market has changed over time. A few years ago, it was all about access control and access authentication. Now, it's more about [securing] the applications and the data itself. Information management continues to be very important for customers, very innovative. There are a lot of interesting things happening with enterprise search and analytics.

What's the biggest misnomer about IBM's M&A strategy?

People come to us all the time to shop companies. I don't think this is an issue just with IBM. But people know that we're very acquisitive, we're buying a company a month on average and that we're broad-based. But we don't buy companies with which we have no prior relationship.

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So how are those relationships established?

We may get to know them, explore some customer engagements together. We're very customer-focused and require our business partners to be. We use a lot of open-source [software] and open [application programming interfaces], since integration is so important, making sure companies we partner with take similar approaches.

Where are the hotbeds of technology development these days?

I have been spending a lot of time in Ireland, interestingly enough. Maybe that will be illustrative. The Irish government has business development agencies to not only bring business into Ireland but to grow new businesses. They put seed money into brand-new companies and a lot of software companies around Dublin and biotech companies around Galway. I was just there last month with Steve Mills, head of our software group.

What other regions are hot?

Eastern Europe, for sure. There's no doubt that there's a lot of skill and entrepreneurship going on there, in places like Estonia, Slovenia, Hungary, the Czech Republic. The other place that's interesting now is South Africa. This is another region where the private equity and venture capital market have grown a lot in the last 18 months. There are a lot of Internet services companies [there].

What types of technology companies have you looked at in China?

In China, we've looked at things related to our hardware business, such as blades, servers and semiconductors. This is another area where there are lots of Internet services businesses. We haven't done business with them yet. We're also tracking a lot of what's happening with games developers, given its impact on our chips business.

Are there aspects of Latin America that interest you?

There's quite a bit of activity in Brazil, specifically. Brazil is one of the more active markets, with a lot of software skills and Internet businesses.

The data management space seems to be popular destination on IBM's acquisition trail. Are there certain areas where IBM is looking either to fill a product or functionality gap or to move quickly into an emerging market?

I think the important trend now is what happens with analytics and BI. The use of information to run businesses has become much more sophisticated, much more semantics involved. Not just for business, but for government and homeland security. We're expanding the reach of what we sell into government and other businesses.

For example, we bought a company called FRD in early 2005 to help gaming companies look for people or employees who were being fraudulent -- looking at information based on their relationships. It's now in the information management business. Now, homeland security agencies can use this to look at relationships between people and information about people who might be terrorists.

You have degrees in cognitive psychology from the University of Pennsylvania and the University of Connecticut. How have you been able to apply that in your role at IBM?

I started out doing human interface design, understanding how customers use computers, what's meaningful to them. That's pretty useful right now. Analytics, data management and semantics are all relevant right now. I'm also aware of body language in meetings since I was trained to look at the world that way.