IBM announced yesterday that it will acquire Coremetrics, a leading web analytics and marketing software-as-a-services (SaaS) company. Before coming to Denmark to build the evidenced-based marketing practice at Klean, I worked at Coremetrics as the Director of Search Agency Services. Following is my view of the acquisition and what it means for Danish companies.

It's About Time

That it should acquire Coremetrics makes sense for IBM, a leader in business analytics and ecommerce platforms. Funny enough, IBM had a web analytics package called Surf-Aid which it spun it off to Coremetrics in 2006. Coremetrics took the people and the technology of Surf-Aid and built an amazing online marketing platform which is Coremetrics today.

The Platform of Platforms

Big Blue is not known for speed, but for might. Maybe its the $16 billion in annual revenue they could drive if they got their act together that explains the recent flurry of activity for marketing software and business optimization companies. IBM snatched Cognos for business intelligence (BI) then SPSS for its predictive analytics and data mining. Next on the docket is Sterling Commerce, a B2B marketing collaboration company.

But IBM already has experience in online marketing. Its platform Web Sphere Commerce (the database platform that lets retailers create web stores) is an industry standard. On top of that, IBM has already been working on esoteric projects around marketing metrics such customer lifetime value in their Zurich R&D labs. Coremetrics will give these Swiss physicists some real data to chew on! So with a history of building and buying, the acquisition of Coremetrics makes sense. It's a crucial part on an entire platform and strategy.

Look at it another way. Web analytics by itself does not an industry make. If you put all the web analytics and marketing SaaS companies together, you have but a few billion dollars in revenue. But if you look at business intelligence overall, the world of IBM, SAS, Oracle, and so on, now we're talking tens, if not hundreds, of billions of dollars. So web business needs to live within the larger business ecosystem. This goes along with the idea of marketing not being confined to any one channel and the move toward integrated marketing and managing all campaigns (web, print, TV etc) from a single platform and dashboard.

Naturally IBM could benefit by offering a platform of platforms, but it already has an internal business case to collect these SaaS companies just to serve its own salespeople. Many don't realize that IBM makes more money on services than software or equipment. So anything that IBM can do to streamline its process and operations is likely to have a positive ripple effect on its bottom line.

The Knowing-Doing Gap

The trend toward business optimization and associated IT platforms has been with us for a long-time, but it is still not realized in most companies. This is explained most elegantly by Jeffrey Pfeffer in his book The Knowing-Doing Gap. Even with all the data at hand, we fail to use evidence in 60% of major decisions. Reality suggests that other factors, not data, are driving decisions. The rise of behavior economics supports this view.

But companies ignore rational business systems at their peril. Business intelligence is valuable not just to increase sales, but to stem losses. A case in point is the past year's performance of Harrah's, which survived the economic downturn with just a 7% decline in EBITA. Its competitor, however, MGM/Grand, saw its EBITA cut by more than half. The story of Harrah's
is a text-book example of business intelligence applied to every part of the organization and a testament to brilliant CEO Gary Loveman, one-time Harvard professor who turned a a sleepy casino company into the world's largest hotel and gaming conglomerate by embracing analytics at every level of the organization. The book to read is Tom Davenport's Analytics at Work.

IBM could offer the dream of a true platform not just for integrated marketing, but the larger offering of business intelligence. This acquisition of Coremetrics is great news for enterprise customers who want intelligent systems platforms to manage their multichannel marketing as well as their entire business process.

Word of Caution

There is a limited supply of humans who not only can understand, but can operate these systems. While this is good news for humans - you are still needed in the world of IT - the deployment of these systems can fall short of the promise for various reasons: too much information to integrate, the high cost of the systems, and most important, the mismatch in the culture of the organization.

The analytics vendors have attempted to address human failings by building rule-based systems in the marketing applications, and many companies have taken advantage of this artificial intelligence to support marginal revenue growth. If the systems are configured properly and maintained with the right amount of human oversight, rules-based engines can have a powerful impact on revenue.

Cutting out the human part is not the way to go, and getting the right service package with the software is key, whether its is purchased from the vendor, provided by an agency, or tapped in house. Let's not forget: IBM actually makes more money on services than it does on software or equipment. If it can train its consultants not just to sell the systems, but to help companies use the systems, then things can really hum.

Pure Plays Stand to Gain

Because of the cost and complexity of these BI and marketing platforms platforms, pure play software applications have emerged. There are oodles of them in the online marketing world. These companies offer a specific software application for an associated marketing channel. Marin Software for paid search, Responsys for email, and Dotomi for display marketing are examples. They focus on doing one thing well, and as a result can be a compelling choice for a customer that is focused on a specific marketing project. Further, the pure play applications are competitively priced and offer buy-in points for companies of any size.

The market is rewarding these companies. Marin Software became the first paid search application (an API that sits on top of the search engines ad platforms and pulls all data into one place) to reach $1 billion in ad spend under management. Many major companies are choosing pure plays in lieu of or in addition to the business optimization platforms.

What Isn't Clear

Large scale complex systems require large scale companies. Small and medium-sized businesses often lack the scalability and revenue to take advantage of these platforms. As of yet, it's not clear how IBM will package and price its offering of Coremetrics; the deal will need another quarter to close in any case. Long term, how Coremetrics is integrated into IBM's larger business optimization platform and to which market segments it is marketed will likely keep the management of both companies engaged for some time.

The acquisition may return attention to Google Analytics, which has been the de facto free, standard and entry level tool for web analytics. Some firms may run back to the free tool; Google has been touting its virtues of free like a dead horse without building enterprise capability. An enterprise platform would include not just Analytics and AdWords, but applications for merchandising, email, shopping cart, CRM, product recommendations, and offline marketing. If Google coupled this with customer service from its AdWords team, then it could truly empower its customers. Also, it could increase the uptake of other Google products such Google TV, the ability to buy TV advertising through AdWords, a disintermediary way to purchase commercials and a way to tap the world of TV which still dwarfs the web. That would be interesting.

Don't expect anything to change overnight. These announcements may come fast, but the reality may take months or years to materialize. The Adobe acquisition of Omniture, the previous #1 web analytics provider, is a valid point. Adobe had the clever idea to sell its Flash and Dreamweaver products prebuilt with Omniture analytics, saving the costly and time consuming process of implementing tags on websites. That acquisition was 9 months ago. We are still waiting for the baby.

What It Means for Danish Companies

Danish companies are starting to get into the analytics game, and Google Analytics is seen as the natural entry point. A few companies have Omniture, and Coremetrics has localized its software for Danish kroner. There is even a Danish company worth investigating for its clever online marketing suite which comes embedded with a content management system, Sitecore.

There is no question that Danish companies can make their marketing efforts more profitable with analytics and other software applications. But more important than any software is the approach of the company. The company needs to develop the mindset for evidenced-based decision making. Danes already have a rational, evidenced-based approach to business in the offline world. Why should it be so different online?