IBM offers to buy ILOG

Independent analyst comment Phil Codling, principal analyst at Ovum

(PresseBox) ( Köln, )
"The deal brings together two companies that clearly know each other: they have a formal partnership dating back a dozen years, and IBM is ILOG's largest partner. While the deal fills obvious gaps in IBM's WebSphere Process Server product line, it also provides a timely exit path for ILOG, whose margins have flattened over the past year."

"ILOG's BRMS gives IBM a stronger rules engine, filling a gap in WebSphere Process Server. While WebSphere already offers a rudimentary capability, ILOG's flagship JRules product provides the ability to embed far more complex rules that can be automatically triggered and reused by multiple business processes. Inclusion of a BRMS is part of a larger debate inside the BPM community as to whether you can separate a business process from its rules. Pegasystems has long competed on an architecture that directly embeds a complex rules engine, while rivals such as Software AG and, until now, IBM have relied on ILOG (or others like Fair Isaac's Blaze Advisor) for customers with highly complex rules."

"While IBM cannot yet legally disclose integration plans, it's an obvious guess that it will natively embed the rules engine, not only inside Process Server but also in other offerings such as FileNet, WebSphere Business Events, and WebSphere Business Fabric."

"Although consistently profitable for the past seven years, currency fluctuations and a slowdown in its BRMS core market, financial services, have hit ILOG's margins hard. Furthermore, with three sharply distinct product families and markets, and only $180 million in revenues, ILOG could not give BRMS the focus it deserved. While BRMS was aimed primarily at the enterprise market, the other lines were more OEM-driven, comprising a mix of large- and small-ticket items. On closer inspection, there was a tenuous link: optimization customers with highly complex supply chains could use a sophisticated BRMS and the visualization engine to make decision-making more intuitive (ILOG was also trying to recast optimization as an enterprise sell). Nonetheless, the OEM business explains how a sub-$200 million company could count more than 500 partners."

"As with any deal of this size, there will be OEM and channel issues. ILOG's charter membership in Microsoft's Business Process Alliance, thanks to an ambitious rewrite (rather than port) of JRules that runs natively in the .NET environment, will likely become history. ILOG's situation is analogous to Rational's, which also had an extensive Microsoft relationship when it was bought by IBM. Similar issues could arise with supply chain optimization, which is used by most major supply chain management application vendors. But none of these channel issues are show-stoppers compared to the opportunities afforded by native access to the vast WebSphere customer base."
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