The fact IBM made three rapid-fire acquisitions in the marketing services space (ecx.io, Resource/Ammirati, and Aperto), understandably raised some eyebrows in the first quarter. However, it shouldn't really be that surprising - rather, it's simply taken longer than expected – and it’s highly likely this spate of acquisitions in the sector will continue.
Two to three years ago there was lots of hype around IBM and other software vendors moving into the marcoms space. IBM launched its Interactive Experience (ix) labs in Q1 2014 to offer multi-disciplinary consultancy in experience design, mobile and digital marketing. Given the multi-million-dollar investment made to establish this service on a global level, it was inevitable that the company would make acquisitions at some point.
However, amongst its enterprise software peers IBM has always been something of an anomaly. Most notably it has a large professional services arm, which other large software vendors such as Oracle, Salesforce and so on do not. From this perspective, it seemed safe to assume IBM would be the first to make serious moves into marketing services. After all, the company already generates a large part of its revenue from the service model of selling time and expertise rather than licences.
IBM: The anomaly?
These deals demonstrate IBM is serious about developing an international footprint in digital marketing services and this clearly places it in direct competition with the established marketing networks, such as WPP and Publicis.
However, IBM isn't the only software business that is acquiring services and consultancy businesses. It is striking that IBM's ix initiative has, to date, received significantly more press attention than the moves into services being made by Salesforce.com, which has picked up two consultancies recently: AKTA in the US, and Kerensen in France. The Salesforce acquisitions were perhaps less predictable given Salesforce.com is the ultimate pure software company. A key element of its proposition to investors has always been that subscription licence fees represents the lion’s share of its revenues.
Selling software has high gross margins and is highly scalable, more so than selling services where an individual’s time can only be sold once, and the only way to grow is to build headcount. Perhaps then the big question should be, why are software firms, even Salesforce, increasingly looking at services?
The answer is probably two-fold. First, software vendors are increasingly coming to realise that if they want their technology to be used to help clients solve their most critical business issues, they need professional services people who are able to have the right conversation at the right level within the client to identify these issues. Of course gaining a direct channel of communication to a customer’s C-suite is also beneficial in terms of building ongoing business relationships.
Also, there’s no denying software will always be more scalable than services, but the value of services in the mix appears to be resurgent. This is because consultancy and the additional services wrapped around it ensure the technology is fully optimised, which in-turn improves stickiness for the long term.
Marcomms is changing
IBM's spate of acquisitions demonstrates how seriously it takes services, and it is perhaps best-placed to become a frontrunner in the marcoms industry. However, as the moves by Salesforce show, it's unlikely the other software vendors will give it a clear run: the questions is whether, and to what extent, the likes of Oracle and SAP will follow suit?
The aspiration of the big software vendors to gain a foothold in the marketing sphere will come as no surprise to WPP and the other marcoms incumbents. The threat has been on their collective radar for some time. However, up to this point their moves had been primarily into marketing technology rather than services.
The marcoms groups have in turn been actively building their technology expertise through acquisition. And they will maintain that brands should not underestimate the value of old-fashioned creativity and the ‘big idea’ in the digital marketing mix. Cultivating an environment in which creativity thrives could be a challenge for most software firms.
What is clear is that the two worlds are set to collide, and IBM is leading the way among the enterprise software vendors for now. We should expect more acquisitions as the firm continues to seek to plug the gaps in its capabilities. The key to its success lies how successfully it will be able to merge its data-centric engineering skills with the design- and creativity-led services it is bringing in-house through these acquisitions. This is something both the incumbents and the other enterprise players will no doubt be following with great interest.
Julie Langley, Partner at Results International
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