IBM-Watchfire deal: Lost in translation?

IBM's proposed buyout of Watchfire lacks shine since the security and compliance testing software company could very well become lost amongst Big Blue's plethora of product offerings, notes an industry observer.

According to a statement released Wednesday, IBM is planning to acquire privately-held Massachusetts, U.S.-based Watchfire for an undisclosed amount. Pending regulatory approvals, the deal is likely to close in third quarter 2007 and will extend IBM's governance and risk management offerings, the companies said.

However, an industry analyst notes that the planned merger could pose some challenges.

John Brand, research director at Hydrasight, said: "IBM has many products in their portfolio now that overlap and will cause much confusion for clients."

"It's really a case of removing technologies from the market as much as filling out the IBM portfolio at this stage," Brand said, noting that this deluge of products could inundate its customers.

"It's ok to say to customers: We have one of everything. But at some point, it becomes a case of: We have several of many things, which one would you like?" he said. The analyst added that this would simply increase the confusion and choice for customers.

According to Big Blue, Watchfire's technology will be melded into its Rational software family to help customers "integrate Web application security and compliance" early and across their software development process. With the integrated offerings, customers will be able to "define, test and track the compliance of their applications with security, legal and corporate requirements", IBM said.

However, Brand noted, many of Watchfire's products--the result of its own acquisition of rival Coast Software in 2005--overlap with other IBM's product offerings.

In addition, the deal "fails to recognize the broader opportunity for providing enterprise software services" he said. "Compliance monitoring and reporting--ensuring compliance to a wide range of regulations and guidelines--is often much more about understanding the context of delivery as ticking checkboxes, and we believe that's the missed opportunity by IBM here."

"There is a different potential audience for service-based products relying on this type of software than the traditional IT shop," Brand said.

Graham Titterington, principal analyst with Ovum, noted that it remains to be seen how the deal will affect Watchfire's existing partnerships, for example, with Mercury Interactive which was acquired by IBM's rival Hewlett-Packard in July 2006.

"At the moment, [Watchfire's] partnership with Mercury accounts for a large part of its business, reflecting Mercury's position in the automated testing market," Titterington said in a research note. "Following its acquisition by HP…it is hard to see this relationship not being disrupted."

Little impact on Asia
Brand also noted that the Watchfire buyout will have limited impact on IBM's business in the Asia-Pacific region, where Watchfire's customer base is "fairly thin" compared to the U.S. market. He added that there is also a large range of reasonably priced alternatives available in this region.

Brand said: "Many of Watchfire's compliance products are targeted squarely at the North American market and have little to no relevance in the Asia Pacific region, [and] their usability and accessibility offerings are slightly more relevant though not necessarily any higher quality or more cost effective than regionally focused competitive solutions."