IBM’s Bluewolf Deal Says the Future is Less New Technologies than New Buyer Focus

Any acquisition by a major market player like IBM is news, and yesterday’s announcement that IBM was acquiring Bluewolf, a Salesforce professional services firm, could be big news.  According to the press release cited here, the deal will “Accelerate Cloud-based Customer Experiences for Salesforce Users,” and the obvious question is why IBM would want to do that—and just being nice is probably not the answer.

Salesforce is the leader in SaaS, a form of cloud service that has two very interesting characteristics.  First, it’s higher on the value chain than any other form of cloud computing.  SaaS users buy solutions, not platforms.  That means it displaces more internal cost than other cloud models (IaaS, PaaS) and can therefore tolerate higher prices and better margins for the seller.  Second, SaaS disintermediates internal IT, creating what the media has characterized as “shadow IT” that takes computing adoption right to line departments.  I think the combination of these two factors has to somehow explain IBM’s move, so let’s look at what the combination means.

First and I think foremost, is that the deal can help IBM with disintermediation problems.  IBM’s engagement model was wonderful in the past when IT organizations relied on IBM salespeople for technology strategy.  The problem it had was that as IT opportunity started to shift down-market, it was too expensive to adopt in the new battleground of SMB.  Salespeople simply couldn’t call on the buyers, nor could IBM afford the inevitable education the buyer needed in order to get anything done.  The line departmental buyer is in the same boat; IBM doesn’t call on them and there are too many to seduce and educate.

But line adopters of SaaS have come to realize that rolling your own IT without any support is a non-starter.  You create awful problems in security and compliance and often end up with something that doesn’t make your business case even if you avoid or remediate these problems.  Of all the forms of cloud technology, my data says that SaaS has the highest ratio of professional service costs to total project cost.  It generates an opportunity to get people to pay for something that they’d want for free if you told them you were selling a product like hardware or software.

But why buy a firm to get the skill?  It’s not like IBM doesn’t understand IT and applications.  I think the answer is that IBM believes that the “tactical” nature of cloud computing is going to generate a lot of interest in ad hoc IT, and that these interests will necessarily arise with the consumers of the service and not with the IT organizations.  Even today, enterprises tell me that the greatest pressure to accommodate mobility doesn’t come from IT organizations but from the organizations whose workers need mobile empowerment for productivity enhancement.  Thus, SaaS might be on the leading edge not only of a shift in buying power but a shift in technology focus.  IBM wants its mobile strategy to work, and mobile-empowerment buyers might well be SaaS buyers.

And that’s not all; we have what I think is the killer reason for a deal in SaaS professional services right now.  It’s the fact that SaaS does not now nor will it ever deploy in a vacuum.  There will be only a vanishingly small number of even mid-sized businesses who adopt a 100%-public-cloud model for IT.  Every cloud will be a hybrid cloud, which means that IBM has two levels of risk/opportunity exposure arising from the hybridization.  One is that big customers who have or are a prospect for IBM solutions are very likely to need to hybridize their Salesforce stuff and other future SaaS offerings with internal IT.  The other is that SaaS professional services could be a pathway to profitable engagement with the down-market segment that IBM’s traditional salesforce can’t afford to call on.  Done right, a professional services engagement on Salesforce could position what could almost be an IBM salesforce paid for by the customer, sitting on the customer site and engaged in IT strategy.

If we look at this from the top and unify the thinking, here’s what we get.  IT has to open new productivity avenues in order for IT budgets to rise—that’s what ROI is all about.  Those new productivity avenues are best understood by the organizations whose workers need to be empowered in new ways.  Those organizations, frustrated by the cost and performance of internal IT, are looking for ad hoc self-directed solutions to their IT issues, and SaaS in general and Salesforce in particular have emerged as the path to those solutions.  Because all of the real gains in IT spending are very likely to emerge from these SaaS explorations, and because these incremental changes will still have to be integrated with corporate IT and the applications it supports, all the good stuff in the future opportunity pool may be focused on the very space Salesforce professional services is already addressing.  You snooze, thinks IBM, and you lose.

This isn’t all that radical a viewpoint.  For most of the past, IT budgets have drawn on two different sets of funding, one to sustain what’s already committed in terms of an IT organization and applications, and a “project” budget to move IT into new areas.  Over time, the project budgets have shifted from empowerment goals to cost-management goals, and line departments have found themselves with little support for improvements in their own operation.

So will this work for IBM?  It might, but IBM is obviously not the only player who sees the light.  HPE, for example, has just announced its own market-supporting consulting strategy based on the industry specification called “IT4IT”, which links IT-user-centric enterprise architecture and business support processes with IT processes in a more direct and efficient way.  IT4IT could be a way of fostering improved engagement of IT organizations in the new productivity paradigms, which would not only give vendors like HPE a pathway to participate in these new benefit-creating processes, but also tend to keep internal IT in control.  And it doesn’t foreclose adding SaaS and even Salesforce to HPE’s targets of opportunity.

These moves suggest that IT is going to get a lot broader, that IT engagements that bring big, real, opportunities will have to be more aligned with business goals than ever before, and that IT organizations will have to earn a place in this evolution.  I suspect the same thing can be expected with networking, and that if there are “new service” opportunities out there, the opportunities are new not for their technology but for the target buyer.