IBM to Buy SPSS for $1.2 Billion

August 4, 2009 Alex Woodie

IBM surprised the IT world last week with the announcement that it’s planning on buying business intelligence software vendor SPSS for $1.2 billion. The big “get” for Big Blue, which bought Cognos nearly two years ago for $5 billion, will be the Predictive Analytics Software (PASW) suite, a set of software products aimed at helping organizations to analyze trends and patterns hidden in their data so they can make better decisions.

Since a product re-branding initiative earlier this year, SPSS is all about the PASW. Indeed, the Chicago-based company added the PASW moniker to about 40 individual products. Only a few products escaped the re-naming exercise, one of which was the i OS-based ShowCase Suite, which the company had acquired in 2001 for $94 million.

But when the company was founded nearly 40 years ago, SPSS was all about the SPSS, or Statistical Package for the Social Sciences. The company’s original product was conceived in 1969 by Norman Nie, Dale Bent, and C. Hadlai “Tex” Hull. Nie and Bent were working on their Ph.Ds at Stanford University, while Hull had recently graduated.

In its early years, SPSS was primarily used by university researchers who needed to accurately categorize the opinions, attitudes, and behavior of people. The software was given away by its authors, while a little bit of money was made by selling manuals, which were published by McGraw-Hill. When the package’s popularity (and revenue stream) threatened the University of Chicago’s non-profit status in 1975, Nie and Hull decided to incorporate (Bent had already gone back to his native Canada).

Soon the SPSS package was being used outside the halls of academia. NASA used the software to predict the failure rates of spacecraft parts, the National Forest Service used it to track injuries and bear encounters by the National Park Service, and the Richmond (Virginia) Police Department reported a 20 to 30 percent drop in violent crime and homicides after letting detectives use it for a year.

Lots of SPSS licenses went to consumer goods manufacturers and distributors, who could make billions and corner markets by accurately predicting consumer behavior. Procter & Gamble and Anheuser-Busch were both big users of the SPSS software, which ran on all the big mainframe and midrange systems of the day, from Control Data and Burroughs systems to Univac and DEC, thanks to a very portable code base.

IBM hopes to take advantage of the PASW suite’s portability by building it into or making it an option for users of its Information Management products. “This technology is componentized, so we can embed it anywhere,” said Information Management GM Ambuj Goyal at a briefing in New York last week for IBM’s new Smart Analytics System offering. Goyal pointed out that IBM is already selling some SPSS stuff, since Cognos data warehousing tools contain SPSS analytical routines.

There will need to be some hashing out of the web of cross-licensing and OEM deals that SPSS is involved with. The vendor’s System i business, for example, will require IBM to make nice with Oracle. That’s because SPSS’ powerful i OS-based OLAP server, sold under the name ShowCase, is based on a version of Oracle’s Essbase, which was obtained over a year ago in Oracle’s $3.3 billion acquisition of Hyperion.

There is also the OEM deal between SPSS and SAP‘s BusinessObjects division that IBM must contend with. SAP set off a run on BI vendors in October 2007 with its acquisition of BO for about $6.8 billion. In early January, SPSS licensed its data mining technology to SAP BusinessObjects, which embedded it into its XI Business Intelligence platform. BusinessObjects and Cognos were fierce competitors when they were competitors, and some of the old feelings will still be there.

While IBM and Oracle have been forced to work together on behalf of a range of joint customers (most notably, the JD Edwards ERP customers that are very loyal to IBM’s AS/400 server line), it could be more difficult for IBM-Cognos-SPSS to justify continuing to work with SAP BusinessObjects.

The acquisition will bring IBM well-respected analytical software, in addition to 1,200 employees and more than 250,000 customers. The two companies have signed agreements, but the deal still requires the OK from SPSS’ shareholders and the SEC. No problems are expected to hinder the deal, which IBM expects to close sometime in the second half of 2009.