SAN FRANCISCO-- With tech start-ups taking the world by storm, industry heavyweight IBM is plowing venture capital into seedling companies it believes can best solve the analytical challenges and public infrastructure problems of what it’s calling the “smarter planet”.
The firm has been holding ‘SmartCamps’ globally, searching for fresh companies it can partner with to bring data analysis to big clients in the enterprise and government sectors, hoping that this global approach will bring new angles to old problems.
Deborah Magid, director of software strategy and member of IBM’s 12 year old VC group, said the services giant was approaching investment differently to firms like Intel Corp. or Qualcomm, which put money directly into start-ups in the same way traditional VCs do, taking a percentage of the shares.
Magid said IBM preferred to offer startups resources like software, cloud access, technical classes, access to experts, IP and consulting, instead of simply offering a large check in exchange for a chunk of their eventual profits.
“We felt it was important to work with young companies because startups are an engine for growth in the tech industry,” said Magid, noting that while some could become part of BM’s mergers and acquisition strategy down the road, the wider goal was to create a partner network.
“You can’t demand exclusivity from a young company,” she said, noting that IBM preferred to see itself as a facilitator to growth, helping found companies it could partner with to offer more diverse services.
“With startups, you never know what kind of innovations you can expect,” said Magid, citing an example of a group of Lumberjacks who had recently created their own data management system to increase efficiencies in forestry work.
Indeed, with so many great ideas coming IBM’s way, Magid called the firm’s SmartCamp the “American Idol” of tech startups, with just nine finalists selected from over 1000 applicants worldwide.
“While all the finalists come from different places and different sectors of the industry, they all have something in common in that they all measure analytics and make sense out of data being gathered,” explained Magid.
The cream of this year’s crop included firms like Skin Scan, which has built a mobile application enabling users to scan the moles on their bodies to measure skin cancer threat levels, Secure Waters, a firm that detects and identifies toxins in surface water and ConnectM, a startup using machine-to-machine technology in the telecom space to collect information from disparate systems to provide analytics to improve energy efficiency.
The winner, Irish startup Profitero, helps online retailers maximize profits via computer analytics.
“Relationships with startups drive a lot of revenue,” said Magid, explaining that though IBM was a large company, a lot of its strategy was aimed at growth businesses. “In order to address all of our customers and potential customers’ needs we need help,” she declared.
EE Times talked to a few of IBM’s selected startups at the Smart Camp Global Finals on Thursday (Feb. 2)
This is a low risk method to find the next "Cisco" or "Dell". By offering support now, IBM can expect long term customer relationships with those few companies that become superstars in their markets, or decide to acquire ones that are within the trajectory of IBM's overall growth strategy.
It seems to me that this is a very unusual approach, that is, for a big company such as IBM to be establishing relationships with small companies with the purpose of becoming partners. I see it as IBM trying to become the head of a big octopus and the small start-ups the end at its tentacles. Seems that IBM wants to become a big provider of software solutions. And just after reading about the new CEO and that their aim is to make 50% of their profit out from software sales confirms this.
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