The Netezza Deal: Where Does Technology Fit In?

Arthur Cole

When does technology cease to be about innovation and more about economics? When it emerges as the only bright spot in an otherwise lackluster economy.

That's the only conclusion I can reach given the spate of high-profile mergers and acquisitions hitting the IT sector of late: a lot of money chasing too few opportunities.

The latest, but not likely the last, is IBM's $1.7 billion bid for data analytics company Netezza. Now, I'm as big a fan of analytics as anyone, but it strikes me as odd that IBM would suddenly want to plunk down that kind of cash on a company with which it has had a close relationship for many years. It's not that I'm saying this isn't a good fit for IBM, considering Netezza already builds its product lines primarily on IBM hardware and software. But the question I have is, "Why now?"

I can't help but notice that over the past five years or so, IBM has shelled out close to $12 billion amassing probably the most fleshed-out analytics portfolio in the business through acquisitions of Coremetrics, OpenPages, Unica and a host of others. No doubt, executives of both companies will tout some unique capabilities that Netezza brings to the table, but since Netezza's customer base most likely mirrors IBM's already, it is hard to see Big Blue recouping that $1.7 billion through an increased customer base.

Of course, the other possibility is to pull Netezza off the market quickly to prevent someone else from muscling in on IBM's action. Someone like, oh, Oracle, which is keenly aware of the growing demand for analytics among top-tier enterprises and would have little trouble integrating Netezza into its Exadata platform. Oracle certainly has the resources to get into a bidding war that, at the very least, would drive the price up to a point that would induce IBM's gag reflex. Already, business analysts are sniffing around the deal to see if more value can't be squeezed out of the company for Netezza shareholders.

The downside of that plan, however, is that if Oracle, or anyone else, fails to wrest Netezza away, the list of suitable rivals in the analytics field is rather limited, and prices for those companies will likely rise to a premium once the inevitable speculation kicks in. Teradata, the leading firm in analytics, jumped 10 percent on the morning of the Netezza bid, giving it a market capitalization of just over $6 billion.

Once again, these are market forces at work, not technological or innovative ones. In the end, Netezza analytics will be more tightly integrated into whichever platform it ultimately becomes a part of, and it will likely see a wider channel distribution. But if the speculation gets out of hand, whomever emerges as the new owner will have to charge a premium for the technology to recoup those inflated costs.

That's not technology at work. That's business.

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