IBM claims it increased its original equipment manufacturer (OEM) partnerships by about 30% in 2007 but would not disclose its specific number of partners. OEM partners embed IBM's middleware or other software into their own products, and it's a trend the company said it expects to see continue this year as businesses demand more comprehensive, fully integrated IT products tailored to specific vertical markets.
IBM has announced two new OEM partnerships in the past two weeks: Fair Isaac, which will build its financial services software on IBM middleware, and Avada Software, which is developing an open source service-oriented architecture (SOA) server based on IBM's WebSphere Application Server Community Edition (WAS CE).
Avada chief operating officer Peter D'Agosta said selling through a distributor is just as profitable, on a per-unit basis, as through an OEM partnership. The difference is that, through an OEM partnership, a small, 3-year-old company like Avada can take advantage of IBM's size and name recognition to increase its own standing in the market.
"That's what we're looking at more," he said. "I can't really see a company our size getting to that point without a partner like IBM."
Instead of using the traditional third-party relationship, IBM works with its OEM partners to develop products together, according to Mark Hanny, IBM's vice president of strategic partnerships. They also put together joint business plans and work on sales and marketing together.
"The customers perceive the higher value," Hanny said.
Another benefit of OEM partnerships is that they allow independent software vendors (ISVs) to do what they do best, said Bob Berini, Fair Isaac's vice president of strategic partnerships.
"We don't have to be experts on WebSphere, for example," he said. "We can rely on IBM people to help us."
D'Agosta agreed, saying, "We're software. We don't really want to be a services business."
IBM and other software players including Oracle and Microsoft have courted smaller ISVs as software partners for some time now.
But the effect of OEM partnerships on others in the channel may not be so beneficial. Some customers still want to buy their software from one vendor and their middleware and hardware from another vendor, then rely on a systems integrator (SI) to put them together -- but Hanny said that's happening less and less.
"We're seeing an increasing trend toward more packaged development," he said.
Berini also predicted that integrated products will become even more in demand and the number of OEM partnerships will continue to rise.
"It's an efficiency in the market," he said. "Will others do it too? I expect they will. It seemed like an obvious play to us."