On Friday, December 6, 2002, it was announced that IBM was to buy Rational Software Corp., for an agreed price of $2.1 billion. Subject to regulatory and shareholder approval, the deal should be completed in the first quarter of 2003.

The Butler Group’s recent in-depth report on application development environments identified that WebSphere Studio, IBM’s offering in this important market, was weakened by the lack of a dedicated heavyweight modeling tool. This gap in the product is now likely to be skillfully plugged, by the arrival in house of the market leader in tools supporting development of business applications and software products. Rational estimates that more than 600,000 software developers use its tools. In combination with the 98 of the Fortune 100 companies that comprise the large-scale end of Rational’s customer base, IBM is acquiring very valuable relationships along with the impressive product set.

While IBM and Rational have an existing business relationship of some 20 years, and see much common ground on which to thrive together, their announcement will unsettle some parts of the application development (AD) world. Many of Rational’s customers in the Microsoft community will wonder if IBM’s influence might change their supplier’s strategy. Speaking on the day of the announcement, Steve Mills, senior VP of IBM Software Group, said that Rational would form a new division within IBM, as the "Fifth IBM Software Brand" (the others being Lotus, DB2, WebSphere and Tivoli). Mills and Eric Schurr, Rational’s chief marketing officer, both stressed the importance for Rational of continuing its development as a tool in support of software development in Microsoft’s .NET environment, as well as for IBM-favored J2EE. Currently, sales revenues from Rational’s eXtended Development Environment (XDE) tool family are gained in equal measure from its .NET and J2EE variants.

However, the two men differentiated how they see the respective capabilities of J2EE and .NET and explained some ways in which Rational’s product development will map onto this background. Much work is taking place to incorporate Rational tools across the existing IBM brands. From this integration work with its Tivoli products, IBM expects to make progress towards the goal of autonomic computing, in which design features (integrated by Rational) will bring software quality methods into the run-time environment.

.NET was described as “work in progress,” as its runtime environment is not yet integrated with design and development tools. Despite this, IBM may look to gain ground in the .NET and Windows runtime space with Rational solutions rearchitectured for this purpose.

Butler Group Opinion: The takeover seems indeed to be a rational one, from both companies’ points of view. IBM’s investment in Rational’s products is likely to bolster its position as market leader. Together the pair will look to extend Rational’s influence throughout other vendors’ products, and enhance IBM’s product range via integration of Rational, especially from leading-edge work in the run-time environment. Users who are committed to the Microsoft camp may experience minor discomfort at the moment, and will look for news of a plan to catch up with IBM’s dart ahead in the world of grown-up AD.

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