Blogs

RedMonk

Skip to content

Why IBM Should Acquire Amazon

I have written a couple of pieces recently arguing that IBM needs to rethink its attitudes to “consumer” vs enterprise, because the distinctions are blurring. But rather than go negative all the time, I figure now is a good time to drop a post I have been considering for a while.  

I am not a numbers guy but I understand Amazon is not over-valued at the moment. Buying the company could be a transformative acquisition that would bring IBM new opportunities in both business process outsourcing (BPO) and grassroots development. Most importantly buying Amazon would also put IBM back in touch with consumers again, a calling card it lost when it spun off Lenovo, as well as bringing thousands of small booksellers to IBM as customers, expanding its small to medium enterprise footprint. Did I happen to mention that Amazon is emerging as a major software-as-a-service player…What might some objections be?

IBM can’t compete with its customers, and Amazon is an online retailer, which might damage relationships with other retailers.

This objection can be answered by pointing out that Amazon provided fulfillment services to Borders.com for seven years, before the ties were recently broken. Amazon long ago became more than an ecommerce site, and its distribution network is a powerful one. Its a tremendous asset.

What about smaller retailers? There was a time when people argued Amazon would put smaller booksellers out of business. The opposite may be true. I remember my surprise when I talked to a small bookshop once a few years ago, and the owner talked passionately about how easy it was to sell books through Amazon, to get on its platform (a classic onramp for sales and continuing trust) and to sell against major retailers.

Is it really off limits for IBM to buy into retail anyway? If IBM can buy a share in a Chinese bank, as it recently did, its clearly time to rethink what IBM is, and what risks it is prepared to take. 

Talking of risk, I would argue IBM is too risk averse at the moment. IBM is doing a great job of deepening its ties with the Fortune 500 – increasing its sales there at the expense of competitors. Collaborative innovation is great, and will earn IBM billions of dollars of revenues over the next few years. But would IBM ever foster the next YouTube or Twitter? I can’t see it.

Grassroots developers don’t see IBM as a potential supplier. Sun is explicitly targeting startups at the moment, and next gen Web 2.0 datacenters.

IBM R&D is now almost entirely large-enterprise customer driven, a massive change from the old days of invent it, sit back and watch someone else make the money on the idea. But this conservatism goes to far. After all – the big companies IBM will engage in collaborative innovation projects with are just too big to be truly innovative. Even Google is finding it hard to compete these days in some areas as it morphs into a BigCo - Twitter handed Dodgeball a beating. Twitter runs Ruby on Rails on Joyent which runs on Sun hardware. Wait a minute – anyone would think Sun had a plan… they should come up with a cool name for it, participation age or something, because its about helping people to participate in the network…

IBM talked about On Demand then seemingly dropped it like a hot brick just as the concepts started to become reality. Amazon may not be making money on its On Demand offerings yet, but developers and startups are heading to Amazon Web Services in droves.  People blog their monthly payments to Amazon EC2 as a badge of honour. People argue that Amazon has removed the need for capacity planning.

How many IBM customers are like Gumiyo?

Within three weeks, Gumiyo, an online mobile commerce provider, had a complete production environment running on the Amazon Web Services platform, including web servers, database servers, and load balancers.

So IBM could gain new SMB customers, a new and truly On Demand infrastructure for developers, and a new Business Process outsourcing capability. What’s not to like?

Of course such an acquisition would entail significant risk. It would mean IBM changing its views on some things – but it would also be a swing to the reality of individual2enterprise network convergence. Sramana Mitra calls out the Extended Enterprise thusly:   

The modern enterprise is no longer one, monolithic organization. Customers, Partners, Suppliers, Outsourcers, Distributors, Resellers, … all kinds of entities extend and expand the boundaries of the enterprise, and make “collaboration” and “sharing” important.

Let’s take some examples. The Salesforce needs to share leads with distributors and resellers. The Product Design team needs to share CAD files with parts suppliers. Customers and Vendors need to share workspace often. Consultants, Contractors, Outsourcers often need to seamlessly participate in the workflow of a project, share files, upload information. All this, across a secure, seamlessly authenticated system.

Right now IBM is very well set up for selling to Enterprise 1.0. But selling to Enterprise 2.0 is going to mean selling to the active end-points, or at least having a conversation with them. IBM needs a ubiquity play. It needs an storage cloud play. With Amazon on board it would have these things. IBM would be part of the internet backbone, and that’s where it has to be.

Categories: Uncategorized.

Comment Feed

25 Responses

  1. I was in NYC yesterday for a Sun media and analyst event, and they had a few interesting things to say around this. No doubt they’re definitely going after Web 2.0, startups, etc. Their point was that, yeah, IBM has the enterprise business market cornered, but that’s today’s enterprise business market. What about tomorrow’s, which could include the Twitters and Gumiyos of the world? Is IBM being short-sighted here, or do they just figure that once companies grow up, they go to IBM?

  2. Possibly, but what would be the effect on Amazon?

    Tim

  3. Good point, Tim. Would it become another Lotus with flat revenues, the lifeblood drained from it and eventually assimilated by IBorgMers?

  4. Funny for a minute I thought I was reading about another 3 letter named company.

    It’s rough sometimes after awhile you find yourself in such a position that it’s hard to “rethink” without doing some major renovating and people seem to want to avoid that these days or at least the appearance that they are doing that.

    IBM could buy Amazon, we could see IBM getting a foothold in the new Information Worker area and being a contender for E2.0 biz as well as E1.0 however all would be for nothing if they don’t alter their thought processes to think E2.0. The old saying “if you build it they will come” works but it’s the choice that IBM (and others have to grasp) “if you build it really good they might come, but if you want them to then go and talk to them and show them the way”.

    I must admit I don’t read a single IBM blog unless it’s posted by an employee from there on SDN and then it’s SAP related. Do they post blogs? Who are their evangelists who there is telling me how cool, innovative and open they are? Whose telling the rest of the world so if they did buy Amazon no one would freak and think another good thing turned dud…

  5. Actually the idea is good on a couple of fronts. It provides IBM with a gateway into the new world. It also provides a number of other players (not IBM) the same opportunity, however also not be a finance guy I am not sure if the others can afford Amazon. As regards IBM acquiring Amazon my biggest fear would be for Amazon, IBM is such a large animal, they end up suffocating their acquisitions, we’ve seen it all before. Thus if IBM were to do this they would have to do it in a very different way from the past, they would almost have to acquire and leave to be self sufficient, like the Google YouTube arrangement. If IBM are capable of that then it could work and could prevent Amazon from self destructing inside IBM. As for the retail side, IBM would gain the best retail platform in the world to sell to their existing customers, just as one see IBM logo’s over big sporting events one could also see IBM logos over retail platforms. And more importantly Amazon with IBM behind them could really push forward much more quickly than currently, they will need that to fend of the other platform players such as Google, Microsoft etc.. The real key here is that both organisations need to see it as a big win rather than a cultural takeover, thats what is difficult, but if they are both united with a single vision it really could be a force to be reckoned with.

  6. Oh I nearly forgot, as well as buying Amazon they should also pickup Mysql and have themshare offices with the Amazon web service folks, then they could complete the vision.

  7. Thanks for jinxing the deal, dude! Man, the discounts I could have gotten. Sick!

  8. Craig – you touch on my reservations about such a deal – is IBM capable of “2.0″? I actually think some parts (and/or some people) are … but whether they are sufficient in number or influence is the question. I might add I have the same reservations about SAP …

    BTW – there are a truckload of IBM bloggers – James can probably tell you more of them, but Ed Brill, Irvine Wladawsky-Berger, andy piper, Luis Suarez – in fact I reckon you’ll see a pile of them over here on the right of the screen in James’ blogroll!

  9. I love your blog James. This is exactly where IBM needs to go. If Amazon could be had (bezos & others own 25% which could easily stop it) and they wouldn’t lose their culture, it would leap IBM forward like no other acquisition ever has.

    Amazon has some things like a9 and askville that really seem like research rather than something necessarily tied directly to revenue generation like you’d see from a Wal-Mart. In that way they’re not unlike IBM. That said culture couldn’t be more different IMHO. Many IBMers are feeling unappreciated and stifled but to my knowledge, none of Amazon’s 10 – 15K employees express those frustrations. Engineers there seem passionate about what they’re doing… I love it if IBM could borrow some of that.

    I don’t know if a company like IBM is too proud to act on a lone analyst’s recommendation, but as a shareholder I hope they do.

  10. wow. great comments everyone. i have a shareholder agreeing (Greg). I have employees hoping for discounts (Patrick). I have a competitor SLAMMING IBM (craig). an enterprise customer concerned IBM can’t successfully make the transition to 2.1 (Ric) a technology dork saying its a good idea (al) and two journalists (kurtz and Tim) raising some big skeptical flags. And a great great point from Mark (is IBM just hoping that everyone else grows up) . Thanks for your contributions folks!

    jgovernorApril 20, 2007 @ 4:36 pmReply
  11. James, we never dropped on demand, the money just went into the SWG SOA campaign which is a sellable instantiation on the on demand architecture.

    I’ll be discussing SOA Infrastructure at IMPACT, it is the embodiment of the on demand operating environment, but rather than being chartware its actual products you can buy.

    Apparently they want me to talk to some analysts so I may be coming in before you leave…

  12. Hi James! Great post! And along the same lines of what I have been suggesting in a couple of weblog entries that I have shared in the past over at my own blog over at http://elsua.net. Still, it is my own opinion coming through, but I fear that just focusing on the enterprise for the sake of the enterprise alone is no longer going to be good enough. The thin barrier between work and play is getting thinner and thinner and, very shortly, most corporations will have to start worrying about how their knowledge workers are going to be productive enough without having to give in far too much, specially as more and more of the younger generations enter the marketplace and their entry barriers will be almost non-existent. They will be more of the kind who will be blending both as opposed to split them up distinctly.
    Corporations will have to find ways to lure them into sticking around and most probably it is actually going to take place by playing some gig around the theme of the cool kids acquiring equally cool companies. Whether IBM will be able to do this with Amazon or not, or whoever else, it still has got to be proved, but one thing for sure is that if IBM is thinking of ignoring the "consumer" (Yes, I know how you are not very fond of that word; me neither) market, it may probably struggle at some point, because everyone else would be paying attention big time. It’s already happening, if you look closer at what is happening out there.
    As an example, let’s just look at the rampant innovation pace that is happening out there in the Web 2.0 space, with Amazon included, to realise that it is something we should not ignore. If anything, embrace, but not ignore. So we shall see how it all plays further. And if it is not with Amazon who knows which one it may well be, right? As long as it happens, that is… Just my two cents worth of comments.

  13. Perhaps it’s a case of “better late than never” here James – sorry for not weighing in earlier. As you can see here Amazon’s value isn’t just in having a funky proposition for SMBs and Web 2.0 players. Amazon is providing the e-commerce infrastructure for UK retail success story Marks & Spencer.

    What’s interesting to me is that when you look at Amazon from the perspective of its component capabilities (CBM, anyone?) rather than from the perspective of its brand, this is a really interesting idea.

    I know you’re not the biggest CBM fan, James, but I think you’re using it yourself without knowing ;-)

  14. What a stuff of un-ambiguity and preserveness of valuable familiarity on the topic of unpredicted feelings.



Some HTML is OK

or, reply to this post via trackback.

Continuing the Discussion

  1. [...] tie in neatly to this comes one from James Governor of Redmonk.com. He does a great job covering IBM and his idea strikes me as brilliant. He argues that IBM is too [...]

  2. [...] was reading this post from IBM Eye (thanks very much for the props Greg) which took my IBM should buy Amazon post seriously (it was meant [...]

  3. [...] be in the music download business when it buys Amazon, which is I guess why the idea will never happen. On reflection eMusic and Last.FM would probably cost upwards of $2bn so I don’t think Jeff [...]

  4. [...] James Governor argues that IBM is too risk averse, large-enterprise focused, and lacks a strong presence at the core of [...]

  5. [...] rather than fostering community-created content, its missing a huge part of the future. IBM makes the same mistake. Its about the shackles of success. Technology companies have no choice but to compete with media [...]

  6. [...] “Right now IBM is very well set up for selling to Enterprise 1.0. But selling to Enterprise 2.0 is going to mean selling to the active end-points, or at least having a conversation with them. IBM needs a ubiquity play. It needs an storage cloud play. With Amazon on board it would have these things. IBM would be part of the internet backbone, and that’s where it has to be.” – James Governor [...]

  7. [...] First it was their marketplace, which is to ebay what Facebook is to MySpace. However, they’ve since moved beyond alternate definitions of ‘retailer’. Now, in the techno-sphere, Amazon’s best known for their WebServices which have been used building all kinds of interesting businesses. They’ve grown so influential in the Web2.0 world, that James Governor at RedMonk suggests IBM should consider purchasing Amazon! [...]

  8. [...] matters is the money you make for other people. Amazon really seems to understand that. If IBM had bought Amazon at its share price at the time of my recommendation, it would be looking golden by close of play [...]

  9. [...] James Governor’s Monkchips » Why IBM Should Acquire Amazon SAVE [...]

  10. [...] James and I tend to agree: Amazon is, in fact, a technology vendor. Even if you don’t subscribe to that idea, you should be planning as if they are. Because the evidence is mounting that the software vendors are facing a powerful new market competitor: their customers. [...]