Rational Software Corp is joining Big Blue’s stable of industry leaders-turned-business units after IBM announced its $2.1bn acquisition of the application modeling and design specialist.
IBM announced the planned acquisition Friday of its application and Web services partner Rational, based in Lexington, Massachusetts, in a deal many believe will hurt Microsoft Corp rather than IBM’s many Java rivals.
IBM said it plans to merge Rational’s business operations, products and 3,400 employees into the IBM software group, where Rational will become IBM’s fifth brand, alongside Lotus, DB2, Tivoli and WebSphere.
Rational takes its place alongside former independent companies Tivoli and Lotus. Rational founder and chief executive Mike Devlin will head the unit, reporting to senior vice president and group executive for IBM software Steve Mills.
The proposed deal generated ripples of surprise though the industry. Founded in 1981, Rational was regarded as a thought leader in its space and a strong business contender with skills valued by partners.
Despite earlier losses this year, the company recently reported better-than-expected third quarter results for the period to September 30, with a net loss of $19.4m, compared to a loss last year of $21.5m on total revenue of $154.5m, down 5.6%
Like many, though, Rational suffered from slow spending by business customers. For the year to September, Rational’s sales were $307m, down 9.6% on the year. The net loss was $25.8m, compared to last year’s $46.4m loss.
Recent consolidation, which saw TogetherSoft SA and Santa Ana, California-based Starbase Corp bought by Scotts Valley, California-based Borland Software Corp, was also believed to have alarmed Rational. Borland, a leader in cross-platform rapid application development (RAD), enhanced its application life-cycle management capabilities in a deal analysts believed challenged Rational.
One ISV source, who wished to remain anonymous, said: Rational were scared by the moves Borland were making. When Borland bought Starbase, they slapped their heads. When Borland bought TogetherSoft, people said ‘Oh s**t and wet their pants.
IBM’s deal shrinks the market for independent software vendors (ISVs) and consulting specialists by one, as Rational comes closer into IBM’s sphere of operations. Rational’s products will be more tightly integrated with IBM’s software products.
Rational’s renowned Rational Unified Process (RUP), a set of software engineering practices, will be expanded to include more IBM-specific content the company said during a press conference on Friday.
The news is a blow to Microsoft Corp, which on Friday conceded executives had talked internally about an acquisition of Rational. Rational’s XDE software modeling tool, launched in February, sat inside Microsoft’ Visual Studio.NET integrated development environment (IDE) in addition to IBM’s WebSphere.
Microsoft’s own application life cycle tools that include Visual SourceSafe are regarded as generally weaker than Rational’s offerings.
Additionally, Rational offered customers of Microsoft adopting .NET the services of its $90m consulting organization, versed in the nuances of change management and application engineering. Those foot soldiers are now considered lost to IBM’s Java cause.
[.NET] consulting is going to come screaming to a halt. There is no way [Rational] are going to sell .NET side-by-side against Java, Borland Software Corp senior vice president and chief strategy officer Ted Shelton told ComputerWire.
Borland partner and IBM competitor in Java application servers BEA Systems Inc said Microsoft has lost a vital partner and piece of the application technology puzzle. Rational had two parts to their business – Microsoft and IBM. One part of the business has gone, said senior director of product marketing Erik Friedberg.
Sam Patterson, chief executive of reusable software component specialist ComponentSource, said IBM faced a tough decision over limiting or stopping development for .NET, which competes with Java.
He called the deal a coup for IBM because it adds another strong brand to the WebSphere portfolio and gives IBM the leading market share in the software development life-cycle products arena.
IBM’s Mills gave a guarded response on Rational’s continued support for rival IDEs. That depends on how it plays out in the market. We see the market becoming much more limited in terms of the numbers, Mills told journalists at Friday’s press conference.
Microsoft Visual Studio.NET lead product manager Dan Hay insisted Microsoft would not be disadvantaged by the acquisition, as the company had nearly 100 other partners in this arena. There are plenty of other solutions out there for our customers to pick up, he said.