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The logic of ILOG

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In the aftermath of IBM’s announcement of intent to buy ILOG, it would be all too easy for us to reflect back on a conversation with ILOG’s chief executive Pierre Haren last winter at its annual user conference covering survival in the software industry.

Haren’s description of the typical life of a software vendor is that first you get a handful of successful references, then replicate to at least 20 to 30 successful accounts, then you start thinking about what your company wants to do when it grows up. Haren’s implicit message was: eat or be eaten.

We won't take the cheap shot about IBM swallowing up ILOG because this deal makes too much sense.

Both companies know each other quite well, having been partners in one way or another for about a dozen years. ILOG’s business rules engine fills a key gap in the WebSphere Process server Business Process Management (BPM) line, and most notably, we saw IBM’s SOA strategy vice president Sandy Carter keynote ILOG’s conference. IBM’s not going to haul out the big guns for any sub-$200m software company.

ILOG has had a case of multiple attention disorder for a number of years. Otherwise, how could you explain that a company of ILOG’s size would have not one or two but three separate product families that targeted almost completely different markets? Or that a $180m company could support 500 partners? ILOG was best known to us and the enterprise software world as one of a handful of providers of industrial-strength business rules management systems. That is, when your rules for conducting business are so conditional and intertwined, you need a separate system to keep them from gumming up into a hairball. That condition tends to typify the world’s largest financial institutions. That’s enough for one business.

But ILOG had two other product lines, one of them being an optimization engine that was OEM'ed to virtually every major supply chain management vendor, from SAP and Oracle to i2, Manugistics, Manhattan Associates and others. And, by the way, it also had a cottage industry business selling visualization tools to ISVs.

Complex puzzle

So how do all these pieces fit together? Just about the only common thread we could think of was the case of a supply chain customer that not only uses the optimization engine, but has such a complex supply chain that it needs to manage all the rules and policy permutations separately. And not to leave loose ends untied, it needed a vivid graphics engine to visualize supply chain analyses so it could conduct better exception management.

Suffice it to say, that is not why ILOG had three separate business units. The company happened to grow satisfactorily, showing profits for seven straight years, so that it never had to face the uncomfortable question of refocusing. Had it stayed independent, it might have had to do so - while revenues grew roughly $20m this year to $180m, profits sank from $4.9m last year to a paltry $500k this year. Blame it on currency fluctuations (based in France, ILOG would have had to discount in the US to keep customers happy), not to mention the mortgage crisis that has cratered the financial sector.

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