In December 2018, HCL announced its biggest acquisition yet by buying seven of IBM's products for $1.8bn. Several of the acquired products represent large and growing market areas such as security, marketing, and e-commerce, but the best-known ones such as Notes and Domino are legacy products. HCL anticipates an incremental $650m in annual revenue from the second year after the close of the deal.
The acquisition puts HCL squarely in the software space and offers some differentiation
The products HCL has acquired include AppScan for web application security testing; BigFix for endpoint management and security; Unica (on-premises) for marketing automation; Commerce (on-premises) for omnichannel e-commerce; Portal (on-premises) for digital experience; Notes and Domino for email and low-code rapid application development; and Connections for workstream collaboration. HCL's plan is to revive these products (which already have an established client base), offer upgrades, and cloud-enable them where possible. HCL already had an ongoing IP partnership with IBM for five of these products – Notes/Domino, Unica, AppScan, Portal, and BigFix (i.e., HCL had taken over responsibility for the development and maintenance of these products while IBM white-labeled them). By acquiring these products, HCL will be able to transition clients and partners onto its letterhead. However, while Notes and Domino have a long-established client base, it is also a client base in long-term decline.
With this move, HCL hopes to build a large software business of its own, and will be able to leverage the existing customers, partners, sales channels, and service organizations that it will inherit as part of the deal. HCL now has the ability to integrate these tools into its services business, which will further strengthen its proposition in areas such as security, e-commerce, and collaboration. Application testing and modernization are important businesses for HCL, and possessing this IP means that it can industrialize more of its application modernization and cloud-enablement processes. This buyout also puts HCL into the software space (where it will not see direct competition from the services players, but from other software companies). However, HCL still has one challenge – although these products have solid technology and an established customer base that has made significant investments in them over many years and would be happy to see them get a new lease of life, they are aging, and face competition from newer products in the market. For those customers that are already moving from these IBM products to newer ones, HCL can also develop a transition program to keep those customers and grow its own customer base further.
However, HCL will need to address issues such as lack of user friendliness that plague these products and the dearth of talent to continue supporting them. It will need to articulate a coherent strategy for reviving these products and, more importantly, take that message to customers, and lay out a clear plan for integrating these products into its wider portfolio. It will also need to provide evidence that it is doing what it takes to position these products (many of them well over 15 years old) against newer products from competition. HCL's challenge will be in evaluating each product and quickly identifying those customers that want to remain on these software platforms and those that are ready to make a move, and retaining them as customers on new platforms.
2019 Trends to Watch: Systems Integration Services, ENS002-000049 (September 2018)
The Future of Enterprise Digital Transformation, ENS002-000039 (July 2018)
Hansa Iyengar, Senior Analyst, Advanced Digital Services