Two months ago, we published an article discussing how Apple Inc (AAPL -0.35%) is becoming more like International Business Machines Corp (IBM -1.05%)but who would have seen this deal coming? It seems even less likely than the 500:1 odds that one Essex man cashed in on from correctly predicting the Germany 7, Brazil 1 upset. Unlike the World Cup game though, investors in Apple will cash in on this surprise, leaving Microsoft Corp (MSFT 1.82%) and BlackBerry Ltd (BB 1.80%) to be upset. IBM gets unique new products to architect and sell while Apple gets a massive distribution network for mobile computing.
"We found a kindred spirit in IBM" ... really?
As happy as Steve Jobs would have been at Tim Cook's success growing and managing his company, you have to wonder if he would have cringed when Cook called IBM a kindred spirit. Its more likely that Cook found a kindred spirit in IBM's openness to partner up rather than the culture and values of the organization. That said, this is clearly value creating for Apple shareholders.
Expanding within multinationals.
Apple is the king of the consumer and IBM has a trusted footprint in virtually every multinational enterprise in one form or another. Despite their respective huge presences, there is virtually no overlap between them. It's really a natural fit if the two cultures don't create friction and it seems like they will be more independent than codependent. Judging from the content in the press release, the new applications will be jointly developed, but it seems that IBM will be taking the lead. It references IBM's domain experts and developers, but only Apple's infrastructure rather than people.
New class of business apps
The joint venture will develop "industry specific apps built from the ground up" that offer cross selling opportunities for IBM's cloud services and device management along with Apple's extended warranty program: AppleCare.
The biggest advantage for Apple shareholders is the additional distribution
Apple may have a larger market cap than IBM, but Big Blue has more consultants and developers than Apple has employees. The press release quotes IBM's 100,000 consultants and developers which is more than Apple's 80,000 total employees. In total, IBM has 431,000 employees, most of which are focused on enterprise computing and services. With the partnership, Apple is now adding a massive new distribution channel.
Who loses? Blackberry and Microsoft
Blackberry is the first company that comes to mind as a potential loser in this transaction. IBM solutions don't materialize overnight, but a key initiative in Blackberry's turnarounds strategy is to develop industry specific applications. IBM just has dramatically more resources than Blackberry to throw at the problem. The partnership is unlikely to impact near-term results since it would be easy for companies that already have Blackberry devices to expand their presence.
Longer term, this could be a real threat for Microsoft. Apple has had little success penetrating enterprise computing, but mobile can act as a back door. Applications that start out on an iPad could expand to Powerbooks rather than Intel-based machines and start chipping away at the tax that Microsoft ELAs are sometimes considered.
It seemed natural for Microsoft to be able to capitalize on its enterprise relationships and offer Nokia handsets, but IBM has just offered Apple a way to negate this advantage. This comes at a time that frustration with Microsoft is high, just months after sunsetting Windows XP caused large organizations to absorb huge migration bills.
Biggest tech story of 2014
This announcement could be one of the biggest stories in tech investing this year. As Amazon.com is trying to compete with everyone and Google and Facebook build new functionality that competes against smaller pure play Internet services, we are starting to see a troop of 800 pound gorillas emerge as the industry leaders suck up the bulk of the industry's profits, much like the Robber Barrons of the 19th century. Apple shareholders should celebrate this shift since the partnership is about to increase Apple's distribution dramatically as IBM contributes the part time efforts of its 100,000 consultants and developers.
