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Apple’s Deal with IBM is a Good Strategic Move

July 23, 2014 | About:

Apple (NASDAQ:AAPL) is one of the most successful consumer brands in the world and it is frequently amongst the highest-rated brands for customer satisfaction. Apple announced on Tuesday that it would be partnering with IBM in order to transform the enterprise. The deal will pair Apple's mobile and tablet hardware with IBM's services, which include its Big Data, cloud and security infrastructure.

The partnership is not the first time the two traditional personal computer ­superpowers have tried to work together. Starting out as competitors selling PCs in the 1970s and slowly escalating to sworn enemies during the early ’80s, the companies had three failed attempts at working together during the ’90s with various software projects. However, each partnership failed due to the inability of the companies to reconcile differing objectives.

Talking About the Deal

The two companies will collaborate on building about 100 industry-specific applications for iOS, targeting various verticals such as retail, healthcare, banking, travel and transportation, telecommunications and insurance. The recently announced deal between Apple and IBM is to target the corporate market in particular. With this deal Apple will get to sell more of its iPads and Iphones to corporate consumers while IBM will benefit from close association with a reputed brand like Apple. This way IBM will get to prepare for the post-PC era. The dynamics of the smartphone industry are always changing and battles are being fought on many fronts. The recent IBM deal is simply Apple's way of shoring up its attack on the enterprise front.

The deal will enable Apple to increasingly penetrate the business enterprise mobile communications marketplace. Apple has for quite sometime been successfully able to increase its presence in the enterprise space. This deal will help the company in furtherance of its objectives. Additionally, the availability of IBM’s apps and solutions on iOS could give corporations a more significant incentive to deploy Apple devices.

The deal would also optimize IBM’s MobileFirst platform for iOS, providing services including workflow and cloud storage, fleet-scale mobile device management and crucial security functions. While Apple itself has been adding more security and device management features to its iOS platform, IBM’s end-to-end solutions could complement Apple’s efforts. IBM will devote about 100,000 staffers to its new enterprise deal with Apple in one function or another.

The Deal May Help Boost Apple’s Enterprise Sales

The deal could potentially improve iPad sales to enterprises, considering that the tablet form factor is better suited for carrying out productivity oriented tasks. IBM will be able to sell the iPhone and iPad to its business customers, combined with packages of apps and other services. Since IBM has a good track record of selling to international business customers, Apple may get to benefit from it as it is not required to build its own enterprise sales force. This will potentially reduce marketing expenses.

With the IBM deal, Apple now has a way of approaching hundreds of companies that already buy stuff from IBM, and getting them to add more Apple products as they go along. Apple shares rose by about 1.5% in after-hours trade, while IBM was up 1.8% following the announcement. Basically this amounts to an exclusive deal for IBM to power end to end enterprise mobility through iPhones and iPads. IBM gets to leverage Apple’s brand, user experience and premium market share. Apple instantly leaps from a consumer company bent and shaped into the enterprise to a fully functioning enterprise solution. IBM will also be reselling Apple devices.

Flipside of the Deal

On the flipside, IBM-Apple partnership is a huge loss for Google (NASDAQ:GOOGL), and a massive setback for Android, primarily because it simultaneously endorses Apple's previously weak enterprise endeavors, puts IBM's might behind pushing iOS to its customers, and puts Android on the back foot.

With this deal around, Blackberry (BBRY) will be a potential loser. The key initiative in Blackberry's turnarounds strategy is to develop industry specific applications. IBM is in a more advantaged position than Blackberry, with better resources to throw at the problem currently.

The most obvious loser is Microsoft (NASDAQ:MSFT) and it is ironic that the announcement comes in the same week as the company announced its largest ever job cuts. Microsoft’s biggest play was to get Windows shops — and there are a ton of them in the enterprise — to go with Microsoft on the mobile front too. IBM and iOS will derail those plans somewhat, but not entirely. Microsoft’s mobile device management and collaboration platform will be strong.

To End

For Apple, this helps give the company some enterprise credibility, while also a chance to maintain the lead it has inadvertently built for itself in the mobile and tablet space. With IBM, Apple can have a real partner that can develop vetted solutions to customers, without requiring Apple to try to build a team that is less focused on its strengths as a consumer/small business company. For IBM, having an official affiliation with Apple gives the company an advantage when trying to win over new clients or retain existing business.

This is surely a landmark deal wherein the two tech giants will, amongst other things, cooperate on creating apps and pushing iOS even further into the enterprise. IBM has a better understanding of the needs of the business customers and already cater to larger enterprises. Analysts say the alliance, in which the two companies will work on a suite of secure business apps, may take years to show up in the bottom line. But they see potential in marrying IBM’s business-software expertise with Apple’s hardware and services.
The partnership between two of the world's global technology giants sees Apple stepping up its efforts to transfer its dominance in the consumer market to the highly lucrative market servicing business users. 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.

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