IBM's acquisition of Internet Security Systems positions the IT giant to sell managed security services to be delivered across an on-demand platform, officials from both organizations told analysts and reporters.

During a conference call, Val Rahmani, the general manager of Infrastructure Management Services for IBM Global Services, and ISS CEO Tom Noonan said customers are looking for a solution that could head off security problems before a network is damaged or compromised.

Noonan said that customers are looking for security to be delivered across an on-demand platform, and that is what IBM and ISS are going to deliver.

IBM plans to sell ISS' products to customers through its IBM Global Services unit, while the company's software will be sold through the Tivoli division.

In an effort to show that IBM is committed to growing its security business, both Rahmani and Noonan said that ISS' 1,300 employees will remain after the deal closes and the company will continue to call Atlanta, where ISS is based, home.

Asked directly about IBM's future and the possibility of additional acquisitions, Rahmani offered no specifics and a vague response.

"IBM is always looking at opportunities," Rahmani said.

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John Pescatore, vice president of Internet security at Gartner, did not see IBM's latest purchase as just a random acquisition purely for the sake of revenue, but he did foresee some difficulties integrating some parts of ISS' product line.

Pescatore believes that ISS managed services fit well with IBM's overall strategy, but the network security appliances, which fall under the Proventia brand name, will not be able to compete with established players such as Cisco and Juniper.

To make network security work, Pescatore believes that IBM will have to heavily invest in its channel partners or keep ISS as separate division, like it did with Tivoli.

"The network security products just does not seem like a good fit for IBM," Pescatore said.

One part of the $1.3 billion deal that did not generate a lot of discussion was how the acquisition would affect ISS' partners as the organization is folded into the Tivoli and IGS units.

Some ISS partners said it is too early to know how the deal will affect business, but there is concern that ISS partners may become little fish in a big pond.

Jim Brown, managing partner of nGuard, of Charlotte, N.C., said he fears the deal will lead to a diluted channel, with IBM partners offering ISS products at reduced rates and minus the expertise of traditional ISS partners.

Brown said he had saw the same type of watered-down channel after other large vendors bought smaller security software companies.

On the positive side, the IBM brand would be a selling point to customers, and both ISS and IBM have good relationships with the channel, he said.

Next page: Finding a place for IBM's shopping spree.

In less than three weeks, IBM managed to snatch up four software companies—ISS, Webify, MRO Software and FileNet.

The question is, How will all these diverse acquisitions fit into IBM's overall growth strategy?

The acquisition of Webify and FileNet are expected to increase Armonk, N.Y.-based IBM's Information on Demand strategy, while MRO Software will help with asset and service management. Meanwhile, the $1.3 billion purchase of ISS is expected to increase Big Blue's global security services business.

ISS is a maker of network security and appliances that specializes in intrusion detection and other systems scanning technology. Once the Aug. 23 deal is complete, probably sometime in the fourth fiscal quarter, ISS is expected to be added to IBM's Global Services division and, company officials hope, give a boost to the company's security product line.

Like rivals Oracle and EMC, IBM has been using acquisitions to shore up its business and expand products lines within security and other spaces, while revenues from traditional, core sectors have slowed.

Most analysts believe that strategy will work for IBM, but there are some doubts.

Click here to read more about IBM's purchase of FileNet.

"We believe the deal makes strategic sense, though the price tag is likely to be interpreted as high," Bill Shope, an analyst with J.P. Morgan in New York, wrote after the $28-per-share ISS acquisition was announced.

"Nevertheless, it should contribute to growth in IBM's $17 billion software division, where, as we noted in June, the company has increasingly turned to acquisitions as a driver of business expansion," Shope said.

Others, however, are sounding a more cautious note.

"We think ISS' MSS [managed security services] business and the X-force security intelligence research are logical complements to IBM's current business," wrote Garrett A. Bekker III, an analyst with Merrill Lynch in New York.

"We are somewhat unclear about the strategic fit of ISS' appliance business, much of which consists of inline appliances that are essentially networking products," Bekker continued.

IBM seems, ironically, to be copying plays from one of its biggest rival's playbook. Over the past two years Oracle has grown from a database powerhouse to a database, middleware and applications juggernaut through 24 acquisitions.

Meanwhile, IBM, since 2001, has added 39 companies to its software group alone, shifting earnings from its faltering services group over to its middleware group. IBM's third, fourth and fifth largest acquisitions—bought between this year and last—were purchased to bolster its on-demand strategy: The company acquired Ascential in March of 2005 for $1.1 billion, FileNet on Aug. 10 for $1.6 billion and earlier this week ISS. (The Software Group's top two acquisitions to date are Lotus and Tivoli, respectively.)

With the notable exception of some major plays in the ERP (enterprise resource planning) and CRM (customer relationship management) sectors with the acquisitions of PeopleSoft for $10 billion and Siebel for $5.8 billion, Oracle too has been working to build out the infrastructure side of the house.

The common thread in both companies' acquisition strategy is building out infrastructure offerings around a services-based architecture.

"The FileNet acquisition was, we think, the real earth-shattering play in this space," said Brad Adams, a financial analyst with Boston Corporate Finance, in Boston. "FileNet was the leading content management and leading BPM [business process management] player that plays to a lot of things [IBM] has developed with its WebSphere strategy. So what we've seen is a lot of process-type applications coupled with integration. And now they're layering security on top of that."

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