On December 6, 2002, IBM announced its intention to buy Cupertino, California-based Rational Software for $2.1 billion to expand IBM's software-development offerings. IBM will pay about $10.50 per share for the company, a premium of more than 28 percent over Rational's December 5 closing price of $8.17. The announcement surprised most analysts and sent shockwaves through the industry for a couple of reasons. First, many Microsoft Partners, including me, believed that Microsoft would eventually acquire Rational. Microsoft really isn't in the enterprise life-cycle tools space yet, an area that's key to winning the enterprise, and purchasing Rational would have been a logical jump start into that space. Second, a Microsoft/Rational merger has been an industry rumor for years, although many have speculated that Microsoft's purchase of Visio, a Rational competitor, actually hurt its relationship with Rational and the odds of a buyout or merger.
After the IBM/Rational announcement, Microsoft was positive publicly. I spoke to Dan Hay, Microsoft lead product manager of Visual Studio .NET, who said, "Microsoft's take is that this is overall a positive thing for .NET customers because many of Rational's customers are using .NET to build on the Microsoft platform. In the interest of supporting these newly acquired customers, it seems likely that IBM will continue to support Rational for .NET customers, effectively increasing IBM's overall investment in .NET. And, as Microsoft has partnered with both IBM and Rational for many years, we expect those partnerships to continue." Hay's comments make perfect sense, considering that IBM has one of the largest Microsoft consulting divisions in the world. The Microsoft Technology group is a part of IBM Global Services, and the relationship was strong even before Microsoft .NET existed.
I also talked to Steve Lasker, national director for R&D at Immedient, a company with Rational toolset users and a longtime Rational relationship. Lasker told me, "Within the Rational suite of tools, Rational XDE has surfaced as one of the best tools for designing .NET Enterprise applications. Rational Software has probably one of the best integrations with the Visual Studio .NET integrated development environment. The only limitation to XDE is while it's very powerful, it can be difficult to use because the UI is complex. While the Java community is used to complex tools, Microsoft developers hold such a high bar on tool usability, that Rational XDE just hasn't met it. IBM needs the Microsoft tools just as much as they need the Java tools, and everyone needs better usability so we can focus on delivering the business solutions, rather then just writing code." Lasker makes an interesting point about how the Microsoft platform developer has been spoiled by a toolset that's better than any other available on any platform. If Rational provides that type of power to the IBM/Java developer, then it can only serve to raise the bar of competition for Microsoft, rallying Redmond to develop something even better—something Microsoft CEO Steve Ballmer has always publicly stated that he encourages.
Lasker went on to make another interesting point: "I don't think this acquisition will be a net negative for the Microsoft side of the Rational tools. I would think it's just a question of how much positive it will have on the Microsoft side of development tools. Microsoft is definitely here to stay for a long time. Continuing to evolve the Microsoft tool support will only grow IBM revenue. IBM didn't get as big as it did by being shortsighted."
I then spoke to Sten Sundblad, chief architect of Sundblad & Sundblad ADB-Arkitektur AB in Sweden, about what Microsoft's plan might be going forward. Sundblad said, "One possible outcome of \[the IBM/Rational purchase\] is increased Microsoft investment in Visual Studio's and Visio's modeling tools, including the ORM \[Object Role Modeling\] tool and the database-modeling tools. This is especially interesting because the world's number-one ORM expert, Terry Halpin, has left Microsoft to return to the academic world. Does Microsoft have the willingness and power to promote this very useful tool?" My comment was, "Well, if they didn't before, they certainly should consider it now." Sundblad continued, "The only trouble with ORM is that too few know about it and what's possible with it. Many believe it is a data-modeling tool, which is not true at all. Primarily, it's a tool for information and business rules analysis. ORM can help add stability to use case models by adding data use cases." Sundblad then posed the question, "Will Microsoft push its UML \[Unified Modeling Language\] and ORM tools, and will Microsoft increase its investment in that now that Rational Software becomes more of a competitor than it used to be?" That's a good question indeed, and one that only time will answer. IBM's acquisition of Rational invites predictions that Microsoft will probably build its own set of enterprise life-cycle tools integrated into a future version of Visual Studio .NET.