IBM scores a triple with ISS
IBM's $1.3 billion acquisition of ISS doesn't just give it a security offering - it spells out a model for how the tech conglomerate's disparate units can work together.
By Owen Thomas, Business 2.0 Magazine online editor

SAN FRANCISCO (Business 2.0 Magazine) -- For a tech giant with $91 billion in revenues, buying a $1.3 billion computer-security company might seem like a drop in the bucket. But IBM's deal to buy Internet Security Systems, announced Wednesday, is actually a watershed moment for Big Blue.

Despite the size difference, IBM (Charts) and ISS (Charts) have some similarities. Both sell a mix of hardware, software, and services.

But where IBM has sprawling, multibillion-dollar business units which struggle to work together, ISS has figured out how to tightly integrate those three technological components into a single product offering. And that's a strategy that IBM can hopefully adopt and exploit.

The complete package

Founded in 1994, ISS began by making hardware and software to detect intrusions into computer networks and other security threats. But starting in 2001, says ISS CEO Tom Noonan, ISS started selling Proventia, a product line which combines network-security hardware and software with monitoring services provided by ISS personnel.

Noonan points out that it's hard to ensure customers' computer security without all three components. Without hardware installed at a customer's office, it's hard to detect what's going on in its internal network. Software, too, is needed to track Internet intruders and other security violations. And to distinguish real threats from false alarms, you need trained technicians who specialize in security - expertise that's hard for individual companies to hire.

On paper, it might seem to make sense for IBM to break up ISS into hardware, software, and services, and assign the chunks to Big Blue's corresponding business units. But Val Rahmani, IBM's general manager for infrastructure management services, says IBM plans to keep ISS intact, under Noonan's leadership.

"This is a model that both our customers [and IBM's] have said makes a heck of a lot of sense," says Noonan.

Breaking down the Big Blue walls

To be fair, IBM's made some progress on its own in breaking down internal walls. Consultants in its services arm tap researchers at IBM's labs to work on particularly tricky customer problems. And earlier this month, IBM's hardware and software divisions introduced a server with a built-in database specifically designed to archive email.

But building more unified offerings that combine hardware, software, and services - modeled after ISS - could give IBM an unassailable advantage over rivals like Dell (Charts), Microsoft (Charts), or Accenture, which only offer parts of such a technological package.

Really, only Hewlett-Packard (Charts) is in a position to mount a challenge to IBM and similarly roll out technology packages that weave together hardware, software, and services.

And the ISS deal puts more pressure on HP to bulk up those businesses. As we suggested last month, HP would do well to buy Symantec, despite the cost - and IBM's acquisition of ISS's security business, which competes with some Symantec offerings, makes such a deal even more urgent. Whatever HP does, it will start out a step behind IBM in rolling out products that smartly integrate hardware, software, and services.

Where HP has an edge, of course, is its strength in making PCs and printers - businesses IBM has sold off. HP could differentiate itself in those businesses by adding on software and services to its hardware. Imagine, for example, diagnostic tools that anticipate hardware failures or ink-cartridge shortages.

They might go beyond just automatically placing orders for replacements and actually feed the data into an online procurement system, so that a company can better monitor its computing and printing costs.

One dark-horse competitor to IBM's new interdisciplinary approach is Sun Microsystems (Charts). Sun, which has shown a surprising resurgence in server sales, is experimenting with renting access to a computer "grid," as an alternative to buying servers.

And Sun CEO Jonathan Schwartz has openly mused about the possibility of giving away hardware and just charging customers for a subscription to the software that runs on it instead. Sun, however, lacks a services arm with IBM's breadth and depth.

The upshot is that we should expect to see more products like ISS's from IBM and its rivals - hardware, software, and services woven together to tackle tech's toughest problems.

Two out of three may not sound bad, but increasingly, customers just won't buy it. Top of page

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