Competitive Intelligence

IBM Acquires Corio

IBM decided to place a bet on a money-losing ASP from days of old, acquiring Corio for $182 million:

At first glance, IBM's biggest challenge will be making Corio's operations profitable. In the first nine months of 2004, the company posted a net loss of $10.4 million. IBM, however, obviously sees potential in the business. Its per-share offer of $2.82 for each Corio share is a 38% premium over Monday's close of $2.05. In late-day trading, Corio shares were up more than 35% to $2.78.

Mike Riegel, director for On Demand Strategy at IBM, says the purchase price, in part, reflects the value of Corio's intellectual property. Specifically, Riegel says Corio's technology and methodologies for rapidly deploying enterprise applications in hosted environments will boost the appeal of IBM's hosting offerings. "Customers now want access to new applications in minutes or hours, not weeks or months, and Corio excels at that," Riegel says.

Meanwhile, at least one Corio competitor says the deal could help boost prices in the ASP market. "Some of the smaller players in the market pursued market share at unsustainable prices. We expect IBM will be a more disciplined competitor," says Andrew Stern, CEO of USinternetworking Inc., which is backed by Bain Capital. Stern says that USi could itself eventually seek a buyer, or issue public stock, but says no immediate plans are in the works.

We'll see if IBM can make a winner out of Corio yet.

- Arik