UPDATED 13:17 EDT / SEPTEMBER 07 2011

NEWS

IBM Eyes Government-Fueled Market Opportunities

IBM made two analytics-related acquisitions last week. Both Algorithmics and i2 help IBM further fill-out its business analytics stack, but they also will help IBM exploit two markets whose growth was and continues to be fueled by the federal government.

The first is financial regulatory compliance. The economic crisis that began in 2008 with the collapse of Lehman Brothers spurred Congress to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act two years later. The act includes a number of new financial regulations that require banks to better manage and report financial risk exposure in order to prevent another  economic calamity.

Banks and lenders that sell mortgage-backed securities, for example, must now retain at least 5% of the credit risk associate with each security it sells to investors. Credit rating agencies must now report to the SEC every time an employee leaves to work for an organization it rates.

Complying with such financial regulations requires sophisticated risk management and analytics software such as the kind offered by Algorithmics. Its software gives enterprises better visibility into risk exposure so they can adjust and manage investment dollars and capital reserves to meet current regulatory requirements and respond to new regulations/market fluctuations. The Toronto-based company already counts over two-dozen large banks as customers and that number is likely to grow significantly thanks to IBM’s channel and include other types of financial organizations that must now comply with the Dodd-Frank act and future regulations.

The second market is crime and intelligence analytics. With U.S. headquarters in McLean, Va. – the heart of the U.S. intelligence community – i2’s has developed a suite of analytic applications that help law enforcement and intelligence agencies detect patterns in large volumes of data that indicate potential threats before they happen. I2’s PatternTracer application, for example, uses custom algorithms to sift through telephone call data to identify potential terrorist targets.

The market for intelligence-related software and services has exploded since 9/11, though it’s difficult to say just how large since its growth has occurred largely outside of public oversight. Spending by the federal government on many intelligence-related activities is classified, but its no stretch to say the U.S. government spends multiple billions of dollars a year. According to the Washington Post, “1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security and intelligence in about 10,000 locations across the United States.” That’s a large and growing customer base for i2 and IBM.

ServicesANGLE

Both markets are also fertile ground for IBM’s data warehouse, data integration and Big Data portfolios, as well as its services business. Financial firms and intelligence agencies need to collect, process and store all that data before it can run analytics on it. IBM’s Hadoop-based InfoSphere BigInsights, for example, is designed to process and store “Internet-scale” volumes of unstructured data like call logs, financial transaction data and machine-generated data – exactly the sort of data Algorithmics and i2 specialize in analyzing. The Netezza line of data warehouse appliances are adept at quickly loading and analyzing similar types of data. And an army of thousands of IBM analytics consultants are standing at the ready to help customers deploy and integrate the various pieces of the company’s business analytics stack.

Whether you believe financial regulation is a good thing or a bad thing, or approve or disapprove of the government’s sprawling intelligence apparatus, there’s no denying they are huge potential markets for IBM and other analytics vendors. With the most complete business analytics stack on the market, IBM in particular is in a good position to capitalize on both opportunities.


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