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IBM to Acquire Rational Software

IBM Corp. last week agreed to acquire development tools vendor Rational Software Corp. for $2.1 billion. The deal marks the second largest software acquisition in Big Blue's history.

Analysts say Rational's strengths as a provider of robust business process integration development tools should greatly enhance IBM's application development portfolio.

According to Stefan Van Overtveldt, director of technical marketing for IBM's WebSphere Application Server, Big Blue's Eclipse project -- which describes a common development framework to which ISVs and IT organizations can write WebSphere plug-ins -- comprises a robust J2EE development environment.

Van Overtveldt says that as a result of its acquisition of Rational Software, IBM has extended the reach of its development portfolio to encompass non-traditional platforms and architectures -- including embedded devices such as cell phones and medical systems. "If you look at the broader thing of what we're trying to achieve here, we're trying to establish a software infrastructure for what we call e-business on- demand, [and for that] you need more than just J2EE runtime and J2EE development."

Additionally, Van Overtveldt points out, Rational gives IBM a means of reconciling the disparate development worlds of J2EE and the .NET framework from Microsoft Corp. within a single integrated development environment (IDE). "Our strategy for the past year has really been to become a bridging vendor that can bring the worlds of J2EE and .Net together. With Rational, we have one common development environment for the J2EE and .Net platforms."

Josh Walker, an analyst with consultancy Forrester Research, says the upside of [IBM's Rational acquisition] is enormous. First, he points out, Rational is an undisputed leader in modeling tools. As companies deploy WebSphere to integrate business processes with Web services and Web applications, "those capabilities and that expertise and Rational's install base of developers will be something that IBM will benefit from."

Forrester recently completed a study in which it found that companies deploying Web application servers today are typically using them as little more than glorified Web servers. This is the case, Walker says, largely because of the complexities associated with most large business process integration scenarios. Walker thinks that Rational's traditional strengths as a purveyor of robust code testing tools doesn't hurt IBM, either. "The more complex the integration scenario, the more important the need for [testing tools.]"

Most important, he says, is Rational's esteem among developers in all segments of the enterprise. "Rational is just a solid company. Every developer knows them. Every developer has some product of [Rational's] in their toolkit. I couldn't think of a bigger or more significant tool grab."

Rational, which has 3,400 employees, claims to have a presence in 98 percent of the Fortune 100 -- including IBM itself. Last year, market research firm International Data Corp. indicated that Rational's Software Configuration Management (SCM) and Analysis, Modeling and Design (AMD) tools were the market leaders in their respective categories.

The deal does raise questions about Rational's support for Microsoft's .NET Framework. Rational is a substantial partner with Microsoft. It markets a variety of tools --Rational XDE, Rational ClearCase and Rational Purify Plus -- that support Microsoft's Visual Studio .NET IDE. In addition, Rational's renowned consulting organization provides .NET-specific development expertise.

With this in mind, IBM's Van Overtveldt wants to reassure users of existing Rational solutions that Big Blue is determined to continue Rational's tradition of broad cross-platform support for a variety of tools and IDEs. Like the former Lotus Development Corp. and Tivoli Systems Inc., both of which were acquired by IBM, Van Overtveldt explains, Rational will retain its brand even as it is folded into IBM's software division. "We recognize the leadership that Rational has, and the part of the industry that they're focused on. That's why they're being treated as a separate brand in IBM's software division."

Moreover, Van Overtveldt maintains, IBM won't prevent its Rational software group from developing tools or IDEs that work with .NET, either. "We are not going to stop Rational [from] providing tools that work on top of .NET or other Java IDEs." At this point, Van Overtveldt says, it's not possible to determine if IBM's Rational software group will devote equal resources to .NET and J2EE support, but he stresses that IBM is committed to helping developers work with technologies of their choosing. "We are very, very much focused on being an open provider of development tools."

Nevertheless, Van Overtveldt concedes, IBM may reduce the number of platforms that Rational supports depending upon how the market for J2EE and other IDEs shapes up. "From a strategic perspective, the question that we do see is that in the Java IDE market there is a consolidation going on. In the long term, the number of IDEs that we need to support through Rational will need to be reduced. That is something that the market will need to sort out."

If at some point IBM should cut back on .NET support in Rational's tools, speculates Forrester's Walker, the effect could be punishing for Microsoft. "They have their own tools [Visual Studio .NET and Visual Source Safe], but in terms of the high-end stuff -- like business process integration and modeling, for example -- they'd have to build their own tools from scratch. That's not easy."

According to Laura DiDio, a senior analyst with consultancy Yankee Group, IBM has staked out a unique position in the Web services space by pushing J2EE and Java (with WebSphere) even as it has stressed its willingness to accommodate .NET. In this regard, she says, IBM's support for .NET could be a powerful competitive differentiator from the likes of Sun Microsystems Inc. and Oracle Corp. " Technology, like politics, makes for some very strange bedfellows. IBM and Microsoft will compete, and bitterly so, on a variety of fronts, but if you notice, they have both together been promoting the Web services security standard."

Large high-tech acquisitions are notoriously difficult to pull off. For what it's worth, Didio says, IBM has an impressive track record in managing even very large acquisitions. For example, Big Blue's largest software acquisition -- its purchase of Lotus in 1995 for $3.5 billion -- has arguably been a success. In addition, the company's 1996 acquisition of Tivoli has borne fruit.

In light of these successes, and with a mind to Big Blue's recent adroitness in incorporating the resources and technologies of smaller companies such as Crossworlds Software and Holosofx (among others), Yankee Group's Didio anticipates that the Rational Software acquisition will be a big win for Big Blue.

"IBM has experience in doing large scale mergers and acquisitions and making them work. Do I think that this is going to be smooth sailing and a panacea? That remains to be seen, but [IBM's] track record has me excited about this."

About the Author

Stephen Swoyer is a Nashville, TN-based freelance journalist who writes about technology.

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