IBM’s $3 Billion Stake into IoT: A Low-Risk Gamble

by Steve Hoffenberg | 03/31/2015

IBM has announced it is establishing a new Internet of Things business unit with more than 2,000 consultants, researchers, and developers, and will invest $3 billion in it over the next four years. Three business areas are being highlighted:

  • IoT Open Cloud Platform for Industries – vertical market oriented big data analytics services
  • Bluemix IoT Zone – expansion of IBM’s platform-as-a-service to improve development and deployment of IoT apps
  • IoT Ecosystem – additional partners for secure integration of IoT data and services (existing partners include AT&T and ARM)

(We won’t rehash all the details of the announcement, which you can read here.)

VDC finds this IBM initiative particularly noteworthy, for several reasons:

  • By establishing a dedicated IoT group, IBM is putting in place structures to speed both technical and business development targeting IoT. It will be interesting to see how the unit: a) navigates a complex weave of horizontal and vertical technologies and markets; and b) intersects and overlaps (and perhaps clashes or not) with IBM’s enterprise IT services.
  • By announcing the size of its investment up front, IBM is communicating the degree of its commitment to IoT. However, considering the amounts of money being spent collectively by other major companies claiming turf in the IoT (Cisco, GE, Google, Intel, etc.), significant mid-size participants (e.g. ARM, PTC), and hundreds of minor players and wannabees, $3 billion might only equate to table stakes necessary to reserve a seat at the high rollers’ table.
  • IBM’s announcement makes no mention of any external investments, i.e. acquisitions or startup funding. Since the year 2000, IBM has acquired more than 125 companies, including more than a dozen for which the price exceeded $1 billion, so we have little doubt that IoT-related acquisitions are in the offing.
  • Unlike Google’s $3.2 billion acquisition of Nest, which has modest short term but substantial long term potential, IBM’s $3 billion to scale up and expand its existing IoT capabilities can go a long way to generating real IoT revenue in the short term. While most consumers are yet to be convinced of the need for a “smart home” (unaware that their cable TV boxes and electric meters are already part of the IoT), enterprises are already seeing the benefits of the IoT on many levels, including customer satisfaction, recurring revenue, cost savings on service parts and labor, and product refinement. Considering IBM’s position in the IT industry, $3 billion seems like a low risk bet.

To look at it another way: as IoT becomes further integrated into day-to-day business IT and operations, what would have been IBM’s risk if it didn’t invest big money in IoT?

View the 2017 IoT & Embedded Technology Research Outline to learn more.

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