Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Seven Questions About Analytics for IBM’s Mike Rhodin

IBM will report its quarterly earnings today after the close of trading at markets in New York. If the consensus of Wall Street analysts is correct, you can expect Big Blue to report earnings of $2.65 a share on sales of about $24.8 billion.

The results could be even better. In a note to clients issued Monday, Chris Whitmore, an analyst with Deutsche Bank Securities, said that while he expects sales to be in line with the consensus, IBM could report earnings that are as much as 10 cents above the consensus. One reason he expects a beat is the services business: Past deals should start paying off, Whitmore says.

You can’t go very far with IBM before you hear the word “analytics.” IBM has this thing about making different bits of the world smarter. Commerce is one thing; cities are another.

Then there’s the planet itself: IBM says it wants to generate $20 billion from new initiatives by 2015, and one of those is making things smarter using its analytics technologies. There’s money to be made in taking data that has previously been ignored, finding patterns in it, then gaining helpful insights. Other companies are getting analytics religion, too: Hewlett-Packard spent $12 billion last year to acquire Autonomy, which specializes in analytics software. Meanwhile, Splunk is coming public in an IPO slated for later this year.

I had the chance to talk about all this recently with Mike Rhodin, the senior vice president of IBM’s Software Solutions Group, during a visit to IBM’s headquarters in Armonk, N.Y.

AllThingsD: Mike, we hear a great deal about how important the analytics business is to IBM, to the point that we rarely hear from IBM these days when you don’t talk about analytics. Yet I think people are still getting their heads around what it means. Walk me through how IBM sees this.

Rhodin: The observation we’ve made, and you have to be careful with observations, is that analytics is something that’s becoming embedded in everything else. It used to be a thing. Analytics was initially business intelligence and dashboards, and when you say the word, that’s what many people still think of. They think of a dashboard with statistics and pie charts that kind of show you what’s going on. We think of it different. It’s that plus real-time analytics, statistical models — it’s starting to look at analytics in real time versus the past. The idea is that you instrument your processes and capture the data as it’s occurring, using statistical models to predict potential problems. So you’re going from reporting on past events to predicting future events. It’s that combination that we find very interesting.

What’s a good example?

We’ve done a TV ad on this, so you’ve probably heard of it. But it’s Sick Kids Hospital in Toronto. [Also featured in IBM’s Centennial film.] We instrumented their data flows, and then we built analytics triggers to look through their data. We’re finding anomalies 24 hours before the doctors and nurses do, simply by instrumenting the physical world, pulling data together, using analytics to gain insight and then using that insight to hopefully get to a better outcome. And that pattern of instrumentation through insight is a repeating pattern of everything we call Smarter Planet.

How did IBM come to see this as so strategically important?

The whole story behind how we put this organization together was driven around an observation we made in 2006 about how the world was going to change. And that we had seen enough examples of this to know that this was real, and it represented a fundamental shift. Some people thought Smarter Planet was simply a marketing campaign, but it’s not. So if you think about Smarter Planet in simple terms, it comes out of the digitization of the physical world, the instrumentation of physical processes that’s going to generate huge amounts of new data, which is going to drive issues around storage, and what to do with all the data, how to analyze it. That pushes you toward real-time analytics and streaming technologies, because with real time, you don’t have to save the data — you want to look for anomalies as they occur. It’s the combination of multiple things happening at once that give you that trigger. So that pattern you see repeating itself throughout the physical world: Smart transportation systems, water systems, intelligent smart-grid systems, health-care systems like the one I described, these are example of real change that are going to occur in parts of the world around us that have been less benefited by information technology in the past. It’s the next big wave of IT spending.

And yet it’s not all about the physical world — you can apply the same patterns to the digital world, too, right? I’ve seen a lot of analytics-related news coming out of IBM that looks at data gathered in the digital realm.

Sure. You’ve seen us do things like sentiment analysis, tracking people’s opinions on the social networks about the Grammy Awards and the Super Bowl. Those are just examples of the same pattern of instrumenting, pulling data together and then looking for patterns. We’re doing a ton around retail. Two years ago, I was at my house in Vermont, and I looked at the paper that morning, and saw a story saying that, according to IBM, luxury goods sales were up. And I wondered who at IBM would have put out that press release. And then, a few minutes later, it was my own group. That was after the acquisitions of Coremetrics and Unica. Coremetrics had previously put out these regular reports, and so they became an IBM report. As we went into Black Friday and Cyber Monday last year, we had enhanced it so that we not only knew what was being bought, but what device people were using to buy it. So we could track purchases on the iPad versus Android versus Blackberry. And we actually published the statistics on that.

What did Unica bring to the table?

The level of information we’re gaining on instrumenting data sets is pretty dramatic. But it’s not just finding out what people are buying — you can also figure out what people are not buying. So you start to see trends in commerce that can tell you how you’re doing against your competitors. So one thing we can do is help companies figure out why things aren’t selling on their Web sites, so they can think through new tactics and offers they might create to get people buying again. The Unica acquisition comes in as a real-time automation of marketing. You feed real-time information into a marketing management program that automates the marketing of those things. And recently we closed in the acquisition of DemandTec, which can automate the pricing of those offers. So you can see how we’re stringing together a group of things we collectively call Smarter Commerce.

So if, for example, Best Buy and Amazon are going to have a fight over who has the best price on a TV, they can just automate it.

Yeah, they can automate it and just watch it go. It is a very interesting set of dynamics that’s unfolding around us. Commerce was one of those areas that we thought was ripe for transformation. We had some of our own internal technologies with our own e-commerce engine, WebSphere Commerce. But that was really about traditional order-capture e-commerce. Then we started thinking about commerce in a very broad sense. There are a lot of processes that exist between companies that do business with one another, and then helping those companies do business with their customers. So we put together a big process map that showed what products we had that addressed those processes, and where we didn’t have them, we had white boxes. Then we identified companies that did, and started to buy them. And over time, we’ve filled in that map.

Have you filled in the map entirely, or are you going to be buying more companies?

We’ve publicly said we’re going to spend $20 billion on acquisitions between now and 2015, and we haven’t finished yet. [Since this conversation, IBM has announced plans to acquire Varicent, a compensation and sales performance analytics company.] We’re always looking for good companies, and it’s part of our business model, and we have a stated intention to buy more.

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