IBM's Watson Marketing sale: Can it stand out from existing super players in CX?

IBM has finalised the sale of IBM Watson Marketing, its marketing platform and commerce software offerings, to private investment management firm Centerbridge Partners earlier this week. This will result in the new company being a standalone organisation based in New York City. The new company will be led by CEO Mark Simpson, former VP of offering management and strategy for IBM's marketing and commerce platform, as well as founder of cloud-based software platform Maxymiser. A new name and brand identity will be launched by this month, and the company is set to offer a comprehensive suite of AI-powered solutions that address today's complex marketing and advertising challenges across verticals. According to a statement from the company:

The independent structure and renewed investment is expected to accelerate innovation and product roadmaps with more focus on the marketer.

This will enable the company to further expand its offerings and solidify its position as a next-generation, AI-powered marketing software platform. Simpson, in a blog post, said the company currently has more than 1,000 employees and it is "far from a small company". Yet, it is also able to be "one of the nimblest and most responsive" to industry changes compared to other companies in the marketing cloud industry.

"We aren’t weighed down by unrelated businesses and large company structures like our competitors, but we have the experience and capabilities to match them and are able to focus 100% on the marketer," he said. Simpson added that the team plans to make better use of its existing technology and will leverage on new customer analytics to gain more daily insight into the experience of marketing clients and their end consumers.

"Our first priority for our products is to improve their ability to connect with each other. While this exists to some extent today, we will now take the extra step of unifying our underlying data structure," he said. Simpson explained that connecting its products from the ground up not only improves performance and speed, but also removes the "burden" of legacy technology and allows the company to innovate at an accelerated pace.

The divestment of IBM Watson Marketing comes months after IBM sold its software products to Indian global technology company HCL Technologies for US$1.8 billion in December last year. It also concluded shortly after Salesforce announced its US$15.7 billion acquisition of analytics platform Tableau Software last month.

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In a statement to Marketing, Noah Elkin, senior research director at Gartner, said incumbents in the marketing cloud space such as Adobe, Salesforce and Oracle enjoy an "unparalleled level" of awareness, consideration and preference. As such, effectively competiting with these incumbents will require going beyond a "me-too" vision, where the new company tries to emulate competitors to become successful. Instead, Elkin said in the crowded marketing technology space, the new company should offer marketers innovative solutions for customer data control and analysis, real-world machine learning and real-time personalised customer engagements.

Meanwhile, Joe Stanhope, VP, principal analyst, at Forrester said the acquisition of IBM Watson Marketing presents a "big opportunity" to Centerbridge. He added:

Centerbridge is in a position to create a competitor to Adobe, Oracle and Salesforce.

He also said that Centerbridge will be able to tackle an area where other private equity firms such as Vector Capital and Vista Equity "have disappointed" in their acquisitions martech business.  "Assuming proper capitalisation by Centerbridge and newfound agility, the new company can leverage current customers, build on existing products, and develop a compelling go-to-market strategy," he said. According to Stanhope, the potential of this deal is "compelling" due to the quality of IBM's offerings and people combined with Centerbridge's investment. He added:

Demand for martech is at an all-time high, so the timing has never been better to reinvigorate an established martech product portfolio.

The acquisition highlights the trend of marketing clouds becoming an increasingly exclusive club. Due to the lack of new entrants in the enterprise marketing software suit (EMSS) space, Stanhope said only a few vendors possess both the resources and incentives to make martech work at such a scale. "IBM follows in the footsteps of Teradata’s sell-off of its marketing applications business, followed by Experian’s similar divestiture — both to private equity firms," he said. Teradata, a database and analytics software company, sold its marketing application business to Martin Equity partners for US$90 million in 2016. Meanwhile, Experian sold 75% of its email marketing business to Vector Capital for US$400 million in 2017.

Even so, Stanhope said it will still not be a walk in the park for Centerbridge, as Adobe, Oracle, Salesforce and SAP have all acquired marketing, advertising and commerce capabilities and increasingly offer sales and service solutions. He explained:

Centerbridge must quickly reconcile IBM's products, its current holdings and potential investments to address evolving CX marketplace requirements.

In addition to that, Stanhope said the sale shows that substantial investments are required to deliver martech innovation. According to him, it is difficult and expensive to acquire martech components, assemble a viable EMSS portfolio, continuously develop best-in-class capabilities, and commercialise offerings in a crowded and competitive marketplace.

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