On April 4, IBM announced plans to sell its marketing technology (martech) assets to investment management firm Centerbridge Partners. Upon completion of the deal, likely midyear following the customary regulatory and closing requirements, Centerbridge will form a new, standalone company based around the former IBM tech. Current IBM Watson Marketing leadership and staff will continue with the new company. Additionally, we expect the new company and IBM to maintain a close working relationship around critical capabilities such as artificial intelligence.

The Centerbridge deal follows IBM’s announcement in late 2018 to sell several on-premises and single-tenant hosted technologies, including Unica, to IT services firm HCL Technologies in a separate deal. At the time, we considered the HCL move a win-win, with IBM clients securing ongoing support and development of established tech investments and IBM clearing legacy product commitments from the roster so it could focus on more aggressively developing its cloud-based solutions.

Divesting the Watson Marketing and Commerce products to Centerbridge is surprising on the heels of HCL, and it takes a lot to surprise us! Upon reflection, it does make sense, however. IBM was already signaling different priorities — most overtly represented by its blockbuster $34 billion acquisition of Red Hat in October 2018 — making big moves in artificial intelligence, blockchain, cloud infrastructure, and building up its Global Services consulting capabilities.

But this is bigger than IBM. Here’s what the move tells us about the state of marketing technology in 2019:

  • Martech is a huge commitment. IBM’s decision provides further evidence of the substantial investments required to deliver martech innovation. It’s difficult — and expensive — to acquire martech components, assemble a viable enterprise marketing software suite (EMSS) portfolio, continuously develop best-in-class capabilities, and commercialize offerings in a crowded and competitive marketplace.
  • Marketing clouds form an increasingly exclusive club. There has been a dearth of new entrants in the EMSS space. There are only a few vendors possessing both the resources and incentives to make martech work at this scale. IBM follows in the footsteps of Teradata’s sell-off of its marketing applications business, followed by Experian’s similar divestiture — both to private equity (PE) firms.
  • Centerbridge has a big opportunity. Centerbridge is in position to create a competitor to Adobe, Oracle, and Salesforce where other PE firms like Vector Capital and Vista Equity have disappointed. Assuming proper capitalization by Centerbridge and newfound agility, the new company can leverage current customers, build on existing products, and develop a compelling go-to-market strategy.
  • Martech isn’t enough. The bigger prize for martech is supporting holistic customer experience (CX) solutions. Adobe, Oracle, Salesforce, and SAP have all acquired marketing, advertising, and commerce capabilities and increasingly offer sales and service solutions. Centerbridge must quickly reconcile IBM’s products, its current holdings, and potential investments to address evolving CX marketplace requirements.

The quality of IBM’s offerings and people, combined with Centerbridge’s investment, makes the potential of this deal compelling. And demand for martech is at an all-time high, so the timing has never been better to reinvigorate an established martech product portfolio. We look forward to learning more when the new firm launches later this year.