Apple, IBM Enterprise Pact Faces Enormous Challenges

My bookcase has a lucite plaque from a tech industry merger I was involved in. Just below the company logos is the phrase: “All the Pieces Come Together.” Technically, the two companies were indeed complementary. Wall Street applauded the merger. In theory, it made complete sense.

In practice, it was a disaster.

Still, when we announced the deal to our respective companies and the press, we signified what a great fit the companies would be by spreading the fingers of our hands and interlocking them in a universal gesture of compatibility. I watched Apple CEO Tim Cook and IBM chief Ginni Rometty make that same gesture when discussing their historic partnership the other day.

It brought back memories.

In theory, the deal between Apple (NASDAQ:AAPL) and IBM (NYSE:IBM) could not make more sense. While Apple’s organic penetration of mobile iOS devices into the enterprise has been impressive, IBM plans to make 100,000 consultants and salespeople available to accelerate that effort, something Apple couldn’t feasibly have done on its own.

Meanwhile, IBM aims to put mobile apps with big data analytics into the hands of workers in large vertical markets such as retail, insurance, and banking. And by reselling iPhones and iPads, not to mention consulting services and service contracts, IBM gets a much-needed boost to its stagnant top and bottom lines.

I can certainly see why Cook and Rometty are so excited about the deal. As Cook – a former IBMer himself – said in a Wall Street Journal interview, “I don’t think you can find two more complementary companies.” Indeed. So much synergy. So much opportunity. Why didn’t they think of this sooner?

You can almost hear them singing Kumbaya as they walk hand-in-hand into the sunset.

This is, of course, the point where I’m supposed to dampen the mood by imparting some cautionary advice on the happy couple, but first, let me say this: At least they had the good sense to stop short of a loony megamerger like AOL (NYSE:AOL) and Time Warner (NYSE:TWC) or Hewlett-Packard (NYSE:HPQ) and Compaq. We can all be thankful for that.

And there is no significant competitive overlap, either. But then, that’s what Steve Jobs and Eric Schmidt said of the partnership between Apple and Google (NASDAQ:GOOG) – before Google’s executives turned to the dark side and turned Android loose on the world.

That aside, I can think of several enormous risks and challenges that have doomed many a partnership. These are the three I’d be most concerned about here:

Cultural fit. While some may cite the age-old clash between the Mac and IBM PC back in the 80s, that’s no longer even remotely relevant. What is significant, however, is the flipside of the very reason the deal makes sense: that developing and supporting products for the enterprise is in IBM’s DNA, not Apple’s.

Apple is great at making a handful of iconic consumer products that third parties can write apps for. Now it’s going to co-develop hundreds of vertical apps and potentially support, at least to some extent, thousands of corporate clients. Granted, that’s better than having to do it all from scratch, but it’s still an unnatural act for the kids from Cupertino.

Scale and execution. Have you ever redeployed 100,000 people – nearly a quarter of IBM’s massive workforce? Neither have I. And neither has anyone else, for that matter. By any measure, the task is enormous … and so are the execution challenges and risks.

Not to mention that IBM’s sales and consulting force is now going to become resellers and integrators of another company’s products. That may not exactly be a first, but on this scale, I believe it is. And while IBM’s culture has changed since the pre-Lou Gerstner days, I doubt if its once dominant NIH (not invented here) mentality is completely gone.

Revenue and intellectual property sharing. Yes, there are business models for revenue sharing and licensing co-developed intellectual property. I’ve seen quite a few over the years. Now ask me how many of them have worked effectively? Very few. It’s a tough equation to balance. One party always seems to end up with the upper hand and that’s not a stable configuration. Which is why big partnerships like this one don’t typically last.

Don’t get me wrong. I like this deal. There is a vast opportunity to put big data analytics and other resources into the hands of countless employees via Apple’s mobile devices, dedicated vertical apps, and the cloud. It’s a sizeable incremental market for Apple and a big missing piece for IBM’s Smarter Planet Initiative, which of course includes making customers smarter and more effective.

But make no mistake; a successful long-term relationship of this size is by no means a slam-dunk. On the subject of enterprise being in IBM’s DNA, not Apple’s, Gartner analyst Van Baker said (also in the WSJ story), “It’s an unlikely combination but a very strong one if they can pull it off.” That’s a very big “if.”