Why Is IBM Getting Back into EDI?

IBM used to (and may still) have some original circa-1880/1900 Hollerith machines on display at its Pallisades, NJ executive briefing center.  Now IBM's apparently collecting 1970s-era software companies with a loose link to its storied past.  It's as if Armonk has become the enterprise software virtual Smithsonian or Internet version of the British Museum. The latest acquisition: AT&T (T) passed off a little piece of technology history over to IBM on Monday May 24 when the two companies announced that IBM will pick up the former Sterling Commerce sometime this year. 

Unfortunately for AT&T software museum pieces don't appreciate the way most real museum pieces do. IBM paid a third of what SBC (now AT&T) paid for Sterling 10 years ago.

But the question that hit me when the release crossed the wire is why is IBM getting back into the old-fashioned ecommerce business. That's ecommerce circa 1970, not ecommerce circa dot-com boom. As I wrote in a post a few years ago:

"...where do you put good old electronic data interchange (EDI)? There's no Web 2.0 in this post, no social computing, no breakthrough nano-anything or virtual tomorrow. The following is just about good old you-can't-run-the-business-without-it EDI."

The leading EDI players when EDI was a leading edge technology were GE and IBM. But IBM sold its business to Francisco Partners in 2004 and as far as I know that business still exists as part of another Francisco portfolio company, GXS. GXS is the successor to the original granddaddy of all online computing, the General Electric Information Service. In other words, back in the day -- naturally -- IBM and GE ran the world, at least the electronic commerce world. Sterling was a 'latecomer' to the game -- early 1980s -- when it was then part of Sterling Software, which spun out Sterling Commerce in the 1990s before it was itself acquired by the former leading software company formerly known as Computer Associates. 

The recent IBM acquisition shows there actually is a method in IBM's eclectic software company buying spree of museum pieces. In my opinion it is not the method the business press writes about, IBM investors think it is about, and not even what IBM is saying the buying spree is about. That is, that IBM is building up its software division in lieu of its hardware business declining.

That's old news. I believe IBM is buying enterprise software companies -- ironically -- in order to also accelerate its exit from the software business.  That is, IBM is exiting information technology sales and service, a business that has become a low-margin commodity effort that does not suit IBM's style. Sterling Commerce, as with the all the guys from way back when, was not really in the software business.  It was in the services business, which is where IBM is heading rapidly by acquiring software companies that help it deliver business management services -- not software -- via the cloud.

-- Dennis Byron

(no financial interest in companies mentioned)

Comments

[edi integration]

EDI is a mature technology but application is broad. Every type of industry can benefit from EDI integration. IBM may rethink about business opportunity.

[abm]

I know the post is long in the tooth, but my 2 cents:

EDI as implemented by today's VANs is a waning modality, but still throws of about two billion a year in communications services and related solutions sales, however you slice and dice it. The push towards direct peering As2 and E2.0 centric hubs (my trading partners only, not a globally accesible commerce messaging system) is a symptom of deteriorating sentiment against the VANs, who have not innovated a damn thing in years. With the exception of the new era B2B service providers of the multi-tenant crowd, and one small but potent API provider (Loren Data Corp), there is a lack of vigor in classical B2B services.

IBM sold a VAN (IE) to Francisco, it was added to GXS, as was Inovis, and stil, not much has changed. But there are surprising opportunities for private capital to succeed with just such innovators - as we see with SPS Commerce who recently IPO'd, and the aforementioned Loren Data Corp, singled out for uncompensated praise by Gartner's Ben L'hreaus for bringing the only EEDI API to market, now being put to E2,0 goodness by the likes of NetEDI of UK, and other notable fast movers, taking the E2.o playbook to the staid supply chain market.

Todd Gould, the founder of Loren Data, continues to innovate despite being a bootstrapped entrepreneur, as he and his loyal band of 5 carries on a gargantuan crusade against consolidation in the sector, and a word will suffice for the initiated.