IBM Smells Opportunity in CRM with Launch of Smarter Commerce Initiatives

by Trefis Team
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IBM (NYSE:IBM) sells middleware software and technology services such as outsourcing and integration to large and medium sized businesses worldwide, and competes with firms like Oracle (NASDAQ:ORCL) and Red Hat. IBM is also among the global leaders in business systems and competes with hardware vendors like HP (NYSE:HPQ) and Dell (NASDAQ:DELL) in the server market as well as firms like EMC (NYSE:EMC) and NetApp (NASDAQ:NTAP) in the storage market.

In a recent development IBM announced the launch of a new software and consulting service targeted at helping companies swiftly adapt to rising customer demands in today’s digitally transformed marketplace. The firm chooses to call this new emerging category “Smarter Commerce” keeping in line with its Smarter Planet initiative. [1] We have earlier discussed IBM’s focus on its Smarter Planet initiative and how the firm stands to benefit from it. (See IBM’s Smarter Planet Initiatives Lay Groundwork for Growth)

We currently have a $185 Trefis price estimate for IBM’s stock, about 15% above the market price. Software and services are the most valuable business divisions for IBM contributing nearly 46% and 42% respectively of the firm’s equity value.

Smarter Commerce Opportunity

According to a recent IBM press release, “Today, 70% of a customer’s first interaction with a product or services takes place online, 64% make a first purchase because of a digital experience and of the two billion people connected to the Internet, more than 600 million are on Facebook. This is compounded by an explosion of mobile purchases, which is tripling annually to $119 billion this year alone.” [1]

The era of mobile and social networks has not only introduced the world to new ways of buying and selling but has also empowered the consumers and raised their expectation of the entire customer experience and is continuing to do so. While earlier only retailers were impacted by the rising power and demands of consumers, now companies in a wide array of industries such as manufacturing, telecommunications, financial services and others feel the need to adapt to these changes. This has presented organizations with unseen challenges in securing customer loyalty. IBM’s new software and service offering is aimed at addressing this very need of enterprise commerce activities.

IBM says, “Smarter Commerce is a smarter way for companies to buy, sell and market their products by integrating operations and enhancing interactions through community, collaboration, process and analytics — all within an industry context.” ((IBM Smarter Commerce, IBM))

We believe this new development will help extend IBM’s leadership in business analytics and optimization sphere and estimate an upside to IBM’s stock.

Potential Upside to IBM

IBM estimates the “Smarter Commerce” market opportunity at $70 billion driven by clients’ need to meet the increasing demand for better customer experience.  ((IBM Launches Software and Consulting Services to Help Businesses Adapt to Rising Customer Demands, IBM)) We believe IBM is the pioneer and industry leader in business analytics and optimization is well placed to capture a major share of this emerging market which will boost both its software and services revenues.

The new software offered by IBM draws on its market-leading WebSphere Commerce platform and will boost IBM’s middleware license revenues as well as consulting services revenues. While we currently estimate IBM’s middleware license revenues to grow from $5.5 billion in 2010 to $10.3 billion through our forecast period, a higher growth to $12 billion driven by IBM’s new offerings will result in an upside of 5%-6% to our $185 Trefis price estimate for IBM’s stock.

See our full analysis of IBM.

  1. IBM Launches Software and Consulting Services to Help Businesses Adapt to Rising Customer Demands, IBM [] []
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