Commentary
2/6/2011
02:22 PM
Bob Evans
Bob Evans
Commentary

Global CIO: IBM's Most Disruptive Acquisition Of 2010 Is Netezza

The Top 10 reasons why Netezza's shaking things up inside and outside of IBM—including some tough talk for Larry Ellison and Exadata.



Among the numerous acquisitions IBM made last year, the one that's having the biggest impact both inside IBM and outside in the industry is shaking up the ways in which customers regard their data, how they try to extract higher levels of business value from those data, and how they're beginning to exploit those data relentlessly to peer into the future and pounce on revenue opportunities.

Six months ago, IBM announced its intention to acquire Netezza for $1.7 billion, and that disclosure came right in the middle of Oracle Open World—perhaps a coincidence, and perhaps not. Two months later the deal was closed, and since then Netezza's high-growth revenue trajectory has only accelerated within IBM's expansive information-management and analytics family.

After chatting with IBM Netezza CEO Jim Baum last week, I've pulled out from Baum's comments a range of timely ideas that help bring some perspective to the rapidly evolving and often-intersecting areas of data warehousing, purpose-built appliances, business analytics, Big Data, and how companies are trying to leverage all of that to turn insight into foresight. I'll share those in just a moment but first let me offer some quick context on Netezza.

Baum offers a compelling point of view on those developments: in mid-2010, analysts were forecasting that standalone Netezza would finish the calendar year with revenue of about $250 million or $260 million. But just a few months later, Netezza had become part of an iconic $100 billion global corporation that has for the past few years been banging the drum loudly for the entire industry about the power of data and analytics and their role in IBM's mega-theme of Smarter Planet.

IBM Netezza's top priority, said Baum, is "to preserve the elements that fundamentally differentiate Netezza in the marketplace for our customers: our price-performance, our total cost of ownership, and being very easy to do business with. We want to preserve and enhance all those traditional attributes, and there's a lot of activity going on within IBM to help us achieve and expand upon all that."

And there's also a parallel effort to crank up every facet of Netezza's operations to be able to fully exploit the huge opportunity both companies see as customers place greater value on their data and on their ability to extract from it powerful looks into the future.

"As we were coming into IBM, Netezza's at about 500 employees—but by the end of the year, we want to have that over 850, including doubling the size of our field organization with the folks to are selling and supporting the products," Baum said, chuckling a bit at the scaling power that IBM can deliver but that would have been unfathomable for Netezza as a standalone company.

Additional investments are being made in expanding the company's analytics reseller channel and in strengthening ties with ISVs for industry-specific solutions. "That's not just software companies within IBM but also very significant partners like SAP's Business Objects, Informatica, MicroStrategy, and other key ecosystem partners," Baum said.

Against that backdrop, here's my analysis of the Top 10 reasons why Netezza is IBM's most disruptive acquisition from 2010—and I'll roll them out in ascending order, starting with #10 and moving up to #1:

#10: Helps IBM push back on Oracle's aggressive Exadata claims. Asked how he'd contrast Netezza's technology and marketing approach with those of Oracle, Baum said, "First, Exadata's positioned solely as technology, not as a business solution, and second, Oracle wants it to be all things to all people. As Oracle tells it, Exadata's the answer for everything: it's the answer for OLTP, it's the answer for analytics, and for data warehousing, and on and on. The problem is, it's not a one-size-fits-all world out there. And if you try to build a one-size-fits-all solution like Oracle's done, all you're really going to do is create an extraordinarily complex environment because you expect the system to be able to do all sorts of things, instead of doing just one thing really, really well. And we all know that complexity drives up the cost, it leads to long time to value, and you spend all your time tuning it and getting all the pieces to work correctly."

#9: Tangibly underscores IBM's role in workload-optimized systems. While IBM has been taking the integrated hardware-software approach for some time, its marketing has lagged its technology in telling that story—and Netezza's unadulterated commitment to optimized systems and appliances should help IBM communicate its position more effectively. "I would argue that IBM's been on the workload-optimized path for a long time," Baum said, "and that's really core to how IBM's always thought about systems." True, but I still think that tradition and that sense of unvarnished commitment is much more widely known and believed inside IBM than outside—and I also think that one of the reasons IBM has elected to keep the Netezza name is to hammer home that commitment to the outside world.

#8: Powerful synergy from small customer overlap. "We're coming into IBM with a very strong market position," Baum said, "because we've been completely focused on one thing, and that has been defining the idea of an information appliance and specifically a data warehousing appliance. One of the things IBM saw very early on when we began talking with them about an acquisition was the strong customer base we have with global companies like NTT Docomo, MetroPCS, Nielsen, Acxiom, and many more. We also both learned that there's not a tremendous amount of overlap with IBM's customer base from a data warehousing perspective, and that creates a real opportunity for us to collectively expand on the customer relationships that IBM has and that Netezza has beyond our data warehousing and business analytics specialty and into other areas of information management."

#7: Creates substantial global growth opportunities for IBM. "As you know, IBM has been very focused on growth markets around the world, from the BRIC countries to other fast-growing geographies. And at Netezza, while we always believed we had something strong to offer in those markets, we just didn't have the scale to pursue all of those. So in a few cases in those growth markets, we had a foothold, but more often it would be more accurately called a toehold," Baum said with a laugh. "So part of the investment IBM's making in Netezza is in growth and scale on the international stage, and that's very exciting for the team here because while our story's been built around growth, it's just totally different now being inside IBM. . . . Our last three months were was a formal part of IBM and we're wrapping up our best year ever by far—we've exceeded plan by a substantial amount."

Next up are some thoughts on where the IT appliance business is headed:

#6: Clarifying the role of purpose-built appliances. With a flurry of entrants into the field, CIOs should be prepared to fend off the next dopey acronyms that are sure to surface: AaaS, or "appliances as a service," and EaaA, as in "everything as an appliance." Conversely, Netezza's clarity of mission since its inception about 10 years ago will help lend some rigor to our understanding of what a purpose-built appliance is, and what it is not. Baum put it this way: "We've been a pioneer in building appliances for data warehousing—in fact we coined that term—and since our founding, that's been our core and our sole focus. At the heart of it, such an appliance provides a certain value proposition that has this as its core differentiation: not just excellent performance but also excellent price-performance and low total cost of ownership that we are able to deliver based on our promise of simplicity, ease of use, and the elimination of administrative overhead," Baum said. "We've built the company on the idea of building an appliance and on doing business like an appliance vendor, and we think that's very important because it requires that you really embrace the ideas of simplicity in your products and in your business model."

#5: Business analytics is next game-changing IT innovation. "I've felt for some time now that the next significant technology-based performance improver is business analytics," Baum said. "The technology curve with enterprise software has moved from fundamental reporting to ERP to virtualization, and all of those have been great in their times, but the the industry right now is at a place where the technology is advanced enough where the next substantial shift and game-changer that the IT world can bring to business is analytics. For us, that fits very well within IBM and its top-down Smarter Planet position and IBM's ability to really connect with customers on business-value improvement. We worked with IBM for years as a very close partner, but now we're inside that ecosystem and we have a chance to gain some incredible leverage across IBM and all of their capabilities."

#4: Further validation of the power of optimized systems. While Baum on a couple of occasions stressed that archrival Oracle's strategy is all about technology and a one-size-fits-all approach, I think Oracle—and Larry Ellison in particular—has done more than any other company to create and amplify the current buzz among customers for the potential of highly engineered and deeply integrated purpose-built systems. Oracle's gone so far as to make it the central message in the company's new branding: "Hardware and Software, Engineered to Work Together." What we are likely seeing here is a bifurcation among those optimized systems with one category typified by systems like Exadata or Teradata's high-end products, while the second grouping could become the appliance category, featuring products that are relatively less expensive and not as powerful but that also deliver the appliance-specific attributes Baum described above: simplicity of operation, minimal administration, and aggressive TCO.

#3: Exploiting data as assets from which business value is generated. "We have customers who are looking to optimize the real estate on the Internet, or their analyses of clinical healthcare trials, or smartgrids, or truck routes," Baum said. "The common thread across all of those is the concept of Big Data as the underlying enabler because in some industries we're approaching a level of technical sophistication where they can have something approaching ubiquitous data collection from all this sensing detection at the point of use—it's just exploding." For some companies, that'll just mean ever-larger storage purchases to hold all that new data, but aggressive and forward-looking companies will look at those data as a prized raw materials that, with the right analytical tools, can be mined, refined, and turned into cash. "With these vast data-gathering systems, in the best companies their data goes through their analytical systems and comes back as increasingly valuable assets from which new business value is generated," Baum said. "So for our customers, now that we're a part of IBM we're engaging with not only the technology people on simplicity and integration but also the CEO and the CFO and the revenue owners because we believe the next big wave—very big wave—of business productivity will be from analytics. And we have to be able to tell customers how to do that."

So is it time for business analytics for the masses? Here's Netezza's perspective on that:

#2: Advancing the cause of business analytics for the masses. Here's where the IBM connection will really pay off for Netezza in helping customers map out strategies for getting the right information and insights out to the proper people at the optimal time and in the optimal context.

While Netezza has built itself on delivering data warehouse appliances, it's the output of those appliances—the business analytics and their insights and ideas and discoveries—that reflect the real potential of IBM Netezza. As Baum said, "From the beginning, a big part of the Netezza vision has been introducing business analytics to the masses. Now that we're a part of IBM, we expect to help make that happen much, much faster."

#1: Shifting business's focus from rearview mirror to the future. In the next few years, this is the behavior that will separate winning companies from losers, and even survivors from those that enter the one-way death spiral. It's nice to have someone be able to exercise hindsight in explaining why such and such happened last month, last quarter or last year, but it's not enough: the best companies will be able to use analytics to reverse the arrow of time and look into what's coming in the future instead of just hashing over and rationalizing what's already occurred. "The term of BI, unfortunately, given the early genesis of the term, has come to mean reporting and dashboarding," Baum said.

"And while those are very important, they've also become sort of foundational because most companies are already doing it. And that means most BI value today is historical in nature and is all about looking in the rearview mirror. But, the way business analytics and optimization are heading, it's much more toward the forward-looking and actionable information—the advanced analytics and more predictive solutions and the business impact they can have."

RECOMMENDED READING:

Global CIO: An Open Letter To IBM CEO Sam Palmisano

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Global CIO: As IBM Accelerates Analytics Business, Can Anyone Keep Up?

Global CIO: Oracle Needs More Than Ellison's Talk To Beat IBM's Systems

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GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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