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Why Ascential Is Essential for IBM

So why did IBM last month pay $1.1 billion to purchase Ascential Software--a niche data integration player with 2004 sales of $272 million and net income of just $15 million? Is Ascential really worth four times its revenue? A conversation I had this week with Frank Brooks, data resource manager at Blue Cross Blue Shield of Tennessee and an Ascential customer, provides a clue to IBM's thinking.

In healthcare financial services, BCBS Tennessee is in the forefront in terms of customer self-service. It's created an online system whereby big commercial accounts can conduct their own data queries by tapping directly into BCBS Tennessee's business intelligence system.

That helps those customers keep better track of their claims patterns, members' prescription usage, and the like. For BCBS Tennessee, it's also a great marketing tool. "We don't know of any other Blue Cross Blue Shield plan that is offering online OLAP analysis," says Brooks. And the key to his organization's ability to deliver this service: Brooks says it's Ascential, along with some tools from Cognos. Ascential, says Brooks, "helps us acquire new accounts."

As more companies in more industries face competitive pressures to offer customers self-managed, rich data services, integration tools like those made by Ascential will become--essential. IDC estimates that worldwide spending on data integration will increase from $9.3 billion in 2003 to $13.6 billion in 2008. IBM's software business needs to tap into as many new growth markets as possible. Not including gains from currency, the company's software sales increased just 1% from 2003 to 2004.

So the question isn't whether IBM overpaid for Ascential--it didn't. It's whether such acquisitions will be enough to kick start Big Blue's growth-challenged software business. In a feature that will appear in the June 20th issue of InformationWeek, I'll take a more in-depth look at how IBM software chief Steve Mills (who tells me that a big part of IBM's integration strategy is that "we'll tie anything to anything") plans to get his business growing again, and what that means for enterprise customers.

In the meantime, I'd like to know what you think of IBM's software strategy. Is the company doing all it can to restore growth?

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