IBM's Cloud Battle strategy in the Acquisition of Optevia

IBM has announced that it has acquired Optevia, a privately owned Software as a Service, (SaaS), systems integrator specializing in Microsoft Dynamics CRM solutions for public sector organizations. Optevia will join IBM Global Business Services and help meet the increasing client demand for CRM SaaS solutions within the public sector.

Industry experts estimate that the world-wide Customer Relationship Management (CRM) opportunity is in excess of $23B, with cloud-based CRM solutions expected to surpass 50 percent of that total. The acquisition of Optevia, will help IBM establish itself as a premier SaaS and digital consultant and accelerate leadership in CRM solutions.

Optevia’s main focus on UK Emergency Services, Central Government, Local Government, Health Authorities and Housing and Social Enterprises, allows them to offer their clients highly differentiated solutions. Optevia’s client base includes ministries, councils, regulators, licensing and grant management organizations, transport authorities and social housing organizations.

“By acquiring Optevia, IBM will be able to provide Public Sector clients and prospects with a range of unique, industry focused CRM based solutions,”said Joanna Davinson, IBM Public Sector Leader - Europe. “This strategic acquisition will help strengthen IBM as a SaaS provider and Global Software Integrator.”

It’s the rapid growth expected in the CRM and SaaS (software-as-a-service) space that has prompted IBM to pursue Optevia. According to the Cisco (CSCO) Global Cloud Index, SaaS is expected to be the fastest-growing cloud service segment through 2018, as the above presentation shows. SaaS is expected to grow at a compound annual growth rate (or CAGR) of 33%, whereas the cloud market as a whole is expected to grow at a CAGR of 24%.

CRM is the largest component of SaaS, which explains Salesforce’s continued double-digit revenue growth. Taking a look at Gartner estimates, though the CRM software market is expected to grow only at a 14.8% CAGR (compound annual growth rate) by 2017, SaaS CRM is expected to grow at 22.6%.

The growth in the CRM space that pushed IBM to acquire Optevia also propelled Oracle (ORCL) to speed up its effort and initiatives in this space. In its latest fiscal 3Q16 earnings release, Larry Ellison, founder and executive chair of Oracle, stated that the company’s positioning “should make it easy for Oracle to pass Salesforce.com and become the largest SaaS and PaaS cloud company in the world.” Oracle stated that it’s growing faster than Salesforce (CRM) in the SaaS space and has ten times more customers than Workday

It’s Salesforce’s dominance in the CRM space that made it a potential target for Microsoft (MSFT) though the acquisition did not happen. Salesforce leads the CRM and SaaS space. Investors interested in gaining exposure to IBM can consider investing in the SPDR S&P 500 ETF (SPY), which has an exposure of 8.7% to application software and invests ~0.7% of its holdings in IBM.

Since its founding in 2001, Optevia has rapidly established itself as a trusted partner for Public Sector and Social Enterprise clients. The acquisition will allow IBM to scale Optevia’s solutions across other areas worldwide, where Optevia's software, assets and highly skilled, industry-focused workforce, coupled with their expertise will significantly increase IBM’s current capabilities.