Digital MarketingIndustry DevelopmentsIBM sells Watson Marketing and commerce portfolio to Centerbridge, focuses on cloud, AI, supply chain

IBM sells Watson Marketing and commerce portfolio to Centerbridge, focuses on cloud, AI, supply chain

IBM will sell their marketing and commerce portfolios for an undisclosed amount later this year, in a move away from martech and toward the cloud.

IBM announced in a company blog post on Thursday, April 4 that they will be selling their marketing and commerce portfolios, including Watson Marketing, to Centerbridge Partners, L.P. for an undisclosed amount.

Centerbridge is a private equity firm based in New York and the transaction should close in mid-2019.

The firm intends to use these solutions to build a new standalone company. That company will operate under a new (not yet announced) name and brand identity.

IBM’s marketing and commerce software involved in this deal includes:

  • Campaign Automation (Watson)
  • Marketing Assistant
  • Media Optimizer
  • Customer Experience Analytics (Watson)
  • Content Hub (Watson)
  • Real-Time Personalization (Watson)
  • Personalized Search
  • Universal Behavior Exchange
  • Intelligent Bidder
  • Price & Promotion Optimization
  • Payments Gateway

“Watson” itself refers to the AI assistant that powers those particular products.

How profitable was Watson Marketing for IBM?

Exact financials aren’t given, but industry reports suggest that IBM struggled to find a suitable product-market fit for Watson. While sophisticated, it apparently required too much extra work alongside the software.

Jefferies, a financial services company, wrote in a widely-circulated equity research report from 2017:

“IBM’s Watson platform remains one of the most complete off-the-shelf platforms available on the marketplace. However, many new engagements require significant consulting work to gather and curate data. Our checks suggest that Watson is a finicky eater when it comes to data enterprises can feed it – in other words, IBM has very exacting standards for data preparation.”

Their report was titled, “Creating Shareholder Value with AI? Not so Elementary, My Dear Watson.”

By putting together public filings and market research data, Jefferies compiled some estimations on the profitability of Watson for IBM.

We can see here the estimated Watson contributions to EPS (earnings per share). It reached its peak EPS in 2017 at just 2.7%.

IBM Watson estimated contribution to EPS

More detailed analyses of estimated returns on Watson, revenues, etc. are all available within the report.

IBM will shift focus to cloud, AI, supply chain

For IBM, moving away from marketing and commerce means moving back toward their core business. In a company blog post, IBM’s General Manager, Inhi C. Suh, wrote:

“Over the course of IBM’s more than 100-year history, we have continuously transformed to meet the evolving needs of our clients.

Today the company is squarely focused on the emerging, high-value segments of the IT industry and accelerating our leadership in artificial intelligence (AI), hybrid cloud, SaaS, blockchain and supply chain, among other strategic technologies.

In particular, our focus on supply chain – from order management to operating supply chain networks – has become a priority. We know that the supply chain is ripe for applying disruptive emerging technologies such as AI, blockchain and Internet of Things (IoT) to improve automation, visibility, operations, and performance. And it is here that we will focus our investment going forward to create leading-edge innovation.”

Building upon IBM’s acquisition of Red Hat

In October 20108, IBM acquired Red Hat, the world’s leading provider of open source cloud software, for a massive $34 billion. The deal came out to $190 per share in cash. This was one of the largest acquisitions in technology — for reference, Microsoft acquired GitHub in June for $7.5 billion.

As we reported then,

“Cloud computing is an emerging $1 trillion growth market. And IBM says 80% of business workloads have yet to move to the cloud — i.e., lots of value to still be unlocked.

The major third-party cloud platforms currently are Amazon, Microsoft, and Google. Together, Red Hat and IBM could stand a chance to position themselves against those three, particularly by offering a hybrid cloud alternative.

IBM is a 107-year-old company. Much of its historic power in hardware, software, and services has been waning against younger technology companies such as Microsoft, Google, and Amazon.”

By selling their marketing and commerce portfolios, IBM will be able to double down on their commitment to staying competitive in the cloud.

What does this mean for the martech industry?

With IBM “out of the picture,” other enterprise solutions will have more room to step in to claim their pieces of the market pie.

While IBM was acquiring Red Hat last year, Adobe, for instance, was acquiring Marketo.

These choices — and of course each company’s history — point to their anticipated paths forward. Adobe will continue expanding their suite of marketing, commerce, and experience services, throughout both B2B and B2C.

Oracle acquired Eloqua back in 2012. But their acquisitions since then have seemed more focused on data warehousing and cloud services.

What do you think will be next?

Read the original announcement from IBM here.

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