IBM announced a $740m software acquisition on Thursday as it accelerated its efforts to use a new software strategy to try to help reinvigorate its flagging services division.
The all-cash purchase of MRO Software, whose technology is used by companies to track and manage industrial equipment and other hard assets, marks the biggest deal since IBM embarked on the new strategy.
The closer integration of services and software depends on a new approach to software design known as “service oriented architecture”, under which software programs are broken down into standards-based “components” that can be reassembled to meet particular needs.
By breaking apart the monolithic software programs on which many big corporate processes depend, IBM hopes to use the new technology architecture to create a new growth business for its software division, while also drawing in the business consultants and systems designers from its services division who are needed to create these more tailored business systems.
MRO, which had revenues of $199m and net income of $14m last year, builds software that is used by companies to manage the purchase and maintenance of a range of assets, including production equipment, fleets of vehicles and telecommunications and other hardware.
By combining this with other technologies, such as remote sensors and RFID tags implanted into equipment, IBM said the software would help the company build integrated, automated systems that customers could use to manage and control all of their assets.
The purchase is symptomatic of Big Blue’s deeper efforts to forge closer links between its software and services arms. In the first half of this year, revenues from services slipped slightly from a year ago, while the software division grew by 4 per cent.
The company hopes to use the convergence to revive growth in the services division, while also raising the profitability of services work by embedding more of the work that was previously done by people into “repeatable” software processes.
The purchase of MRO is the eighth software acquisition by Big Blue this year, and signals an intensification of its use of acquisitions to expand a division that already accounts for 19 per cent of its revenues and 40 per cent of its gross profits.
Other big software deals in recent years have focused on the sort of infrastructure software that forms the core of IBM’s business, such as the $865m purchase earlier this year of Micromuse, a systems management company.