BPM in Action

On July 21 when Appian went for venture funding for the first time, I said that it was rare that my IT Investment Research (see link to the right) work intersected with my business process management (BPM) blogging. But here I am a week later with a similar cross-over: IBM’s (IBM) July 28, 2008 announcement that it was acquiring the French business-rules-engine/optimization/visualization software supplier Ilog. At least this week, let me add some user advice—the primary purpose of this blog—to the investment analysis.

There are three kinds of Ilog business process management (BPM) software users and one of the three has to be concerned about the deal. First off, users that have long used both IBM and Ilog products as their primary suppliers--and there are many of them--of this sort of software should be all set, depending on how IBM’s integration of Ilog products into WebSphere and Tivoli take. It will be years not months so there is no immediate issue. Secondly, BPM users that like to “roll their own” for BPM are all set whether or not you consider both IBM and Ilog primary suppliers. You are a small group and since “rolling your own” is your whole philosophy, there is nothing IBM can do to change Ilog that will change your strategy.

Third, that leaves you whose primary supplier is Adobe (ADBE), Microsoft (MSFT), Oracle (ORCL), SAP (SAP), and others whose primary supplier is not IBM. You have some decisions to make. According to Ilog’s 20-F

“In fiscal year 2007, our largest customer was SAP A.G., an ISV, provided 3% of our revenues, and our next nine largest customers, of which three were ISVs, accounted for a further 11% of our revenues.”

[Note: in the conference call, Ilog said IBM became the leading partner in Ilog's fiscal 2008, which ended June 30, although "partner" was defined differently than the SAP relationship in the fiscal 2007 20-F referenced above.]

Those unnamed ISVs are probably your primary supplier. Your challenge: Do you stick with a BPM engine maker that is not in tune with your primary BPM or middleware supplier?

In addition, although less of a direct conflict, Ilog is a key partner with EMC/Documentum, Fujitsu, HandySoft, and Vitria. In fact, according to its 20-F

“As of June 30, 2007, we (Ilog) have entered into agreements with 547 ISV partners, of which 275 generated approximately 20% of our revenues in fiscal year 2007.”

By way of analogy, Ilog is basically an important independent piston maker that has been acquired by Ford.

This should be good news for other still independent rules-engine suppliers such as Corticon and Haley or even some of the work underway at Red Hat (RHAT)/JBoss to develop a full-featured open source alternative in the rules engine space.

Ilog also had important partnerships with Accenture (ACN), BearingPoint (BE), CapGemini, Infosys, and Wipro that might be affected by a new close relationship with IBM Global Services (or whatever they are called this year). As with many IBM tactics, this takeover might have as much to do with the fact that Ilog was ramping up its professional services staff as with the Ilog product lineup. IBM is really a services company as opposed to a technology company—despite the functionality discussion at the announcement. The Ilog products were probably not that important to the business opportunity from IBM top management perspective. It was probably more important that Ilog was transitioning to a business model with an emphasis more on services than technology just as IBM has already done.

(As for the half of the Ilog user base, as estimated by 2007 and past-year revenue flow, that is not using Ilog for BPM, that’s another issue for another blogger who writes regularly on another subject. Although Ilog highlights its BPM capabilities and most of the discussion at the conference call was BPM related, Ilog derived almost half of its revenue in 2007 from non-BPM CPLEX/LogicTools optimization software and a visualization product line. IBM said it was also interested in the possibilities of using that other technology in new ways and in fact already uses some of it as a customer.)