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IBM Expands Cloud App Portfolio With DemandTec Buy

Deal is latest sign that Big Blue wants to go beyond infrastructure and be a player in business applications.

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IBM said Thursday that it has reached a definitive agreement to acquire DemandTec, a San Mateo, Calif.-based developer of cloud-based applications for retailers and marketers.

Under the deal, IBM will pay $13.20, or about $440 million, to purchase DemandTec outright.

DemandTec makes applications that are designed to give retailers more accurate insights into pricing, demand, inventory, and other market conditions. IBM said it would add DemandTec's products and services to its Smarter Commerce group.

"IBM Smarter Commerce is redefining how brands buy, market, sell, and service their customers in ways that their customers want," said Craig Hayman, general manager for industry solutions at IBM.

[ There is a lot of activity in the cloud. Read Should SAP + SuccessFactors Worry Salesforce.com?. ]

"Bringing science to the art of pricing and promotion is a big part of this strategy, and the combination of DemandTec and IBM will help marketing and sales executives in retail and other industries drive more revenue and increase profitability," Hayman said.

DemandTec offers a number of cloud-based apps that use algorithms to help retailers predict pricing, supply, demand, and inventory conditions. It also develops apps that help sellers manage and close transactions.

"DemandTec has unprecedented capability to improve customers' price and promotion tactics on a standalone basis and connect retailers and manufacturers for collaborative planning through the cloud," said Dan Fishback, DemandTec's president and CEO. "IBM is the only provider of price and promotion offerings within a rich solution set that supports companies' buy, market, sell, and service processes."

The deal, which remains subject to regulatory approval and other closing condition, is the latest indication that IBM is looking to go beyond its role as a infrastructure provider to offer business applications that run on top of middleware products like WebSphere and DB2. It would also put IBM in direct competition with Oracle and SAS, the latter being an IBM partner.

"IBM is clearly looking to expand its portfolio," said Rob Enderle, principal consultant at The Enderle Group and a former IBMer. Enderle said more such deals are likely in the future under Ginni Rometty, who takes over as CEO from Sam Palmisano on Jan. 1. "If she was not on board with this strategy she could have vetoed it," said Enderle.

IBM is clearly looking to buy its way into applications or application-like platforms. This year alone, the company has announced or completed buyouts of five such vendors, including the $387 million acquisition, made public in September, of risk analysis specialist Algorithmics. Also since January, IBM has inked to deals to acquire Tririga, i2, Q1 Labs, and private cloud developer Platform Computing.

IBM has said publicly that it plans to spend $20 billion on acquisitions by 2015. "I've got a long list of things I'm interested in," said IBM software chief Steve Mills, in a recent interview with InformationWeek.

IBM shares were off 1%, to $192.10, in late afternoon trading Thursday.

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