Mark Smith's Analyst Perspectives

In a second move indicating its seriousness about competing in the market for marketing software, IBM announced its offer to acquire publicly traded Unica Corp. Unica is one of the larger providers in this space, with more than $100 million in annual revenue and 1,500 customers worldwide. Its success in very large marketing organizations, including brand-name customers Best Buy, Marriott and IBM itself, enabled it to be one of the few that has continued to grow in the challenging economic environment. It provides enterprise marketing automation and analytics software in both on-premises and on-demand forms. Unica had grown significantly in sales to business-to-consumer (B2C) companies, competing against Eloqua, SAS Institute and Infor’s CRM product, which was derived from its acquisition of Epiphany and has advanced since then (See:  “Infor Launches Innovative E-mail Management“).

Unica’s core marketing automation product is Unica Enterprise. It facilitates the management and execution of marketing campaigns and interactions with customers and includes marketing analytics that provide historical and predictive insights. I have written about the importance of analytics for marketing and its usefulness for gaining insights about where to focus investments and resources.

Unica has been attracting more software subscriptions and customers through its Unica OnDemand offering; this delivery method is an increasingly critical component of success in this market, especially in business-to-business (B2B) relationships. It is rapidly growing with new on-demand applications from Engage, Manticore and Marketo, which mostly target midsize customers. The techniques of marketing automation and sending e-mail have advanced into lead nurturing and scoring so marketers can automate the interactions and responses to improve results. Unica has added these features to its on-premises product and is working on fully supporting them for its on-demand version. In B2B of course the volume of customer interactions is not as large as for B2C, but the same capabilities are necessary if companies are to verify that their marketing efforts are working by measuring interactions across the Internet. There is an opening for these providers in that others such as salesforce.com do not address the needs of midsize and large marketing organizations.

Through its earlier acquisitions of Cognos and SPSS, IBM gained analytic technologies of use to marketing organizations as well as others where it has expanded its support for social media channels like SAS has done this year and my colleague assessed (See: “SAS Helps Companies Make Sense of Social Media Comments”). Recently IBM completed the acquisition of Coremetrics, which provides Web analytics and e-commerce infrastructure along with social media analytics. Its flagship product Coremetrics Analytics 2010 brings forward a new platform and tool set for Web analytics. There is some overlap between the two companies, but that should not be difficult to reconcile. IBM has determined that it will focus on improving its applications and analytics to automate and manage marketing efforts. The Coremetrics and Unica acquisitions send a clear signal that IBM is serious about dominating this market. The acquisitions challenge the existing offerings of SAP and Oracle, which after acquiring Siebel Systems once had a large share of the marketing automation market but has been very quiet since.

IBM has long experience in acquisitions of software companies, though most of them have provided products for IT groups. Marketing organizations are different from IT in style and working relationships, and acquiring Unica’s expertise is essential to expanding IBM’s brand and relationships in this market. Marketing customers require a different type of marketing, sales and service team than IT, and IBM must address those issues in its efforts to absorb Coremetrics and Unica. I already pointed out in our firm’s guidance for 2010 that managing marketing with new applications and technology is essential for maintaining a competitive edge. Now IBM will have to determine if it wants to step also into applications for sales and customer service, which have a lot of growth potential as the older CRM systems are not addressing the future needs for the specific lines of business and their processes.

IBM is spending more than $1 billion in 2010 on acquisitions, resources and associated costs, with the result of challenging established providers of applications in marketing while providing new opportunities to utilize its business analytics technology in future product releases. I advise Unica and Coremetrics customers not to worry as it is clear that IBM wants be a dominant brand and supplier in enterprise software including applications for business and not just IT. This announcement demonstrates that it is willing not just to pay a premium for entry into the market but also to bring resources from the organizations it takes over.

Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter.

Regards,
Mark Smith – CEO & EVP Research