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IBM Partner Strategy Emphasizes Intellectual Property (IP) Licensing Income

Most IBM watchers are focused on the company’s quarterly revenue miss, which the technology giant announced yesterday. But take a closer look and you’ll discover a strategic shift in the company’s partner initiatives.

Indeed, IBM is doubling down on intellectual property (IP) partnerships that generate income, Senior VP and CFO Martin Schroeter said repeatedly during yesterday’s earnings call. Perhaps by coincidence — or maybe not — IBM never once mentioned resellers, integrators, MSP or CSP partners during the lengthy earnings call.

In some ways, IBM’s IP partner push reinforces the rise of specialized channels, which The 2112 Group described in 2016.

IBM explains the IP partner push this way: “Our investment in research and development generates a significant amount of intellectual property and we have a number of different ways we monetize it,” said Schroeter. “Keep in mind that the vast majority of our IP is monetized to revenue stream, with only a small portion through IP income.”

Rewind about 15 years. At the time, much of IBM’s IP was associated with the company’s semiconductor manufacturing and design business, he said. “At the time, in addition to licensing some of the IP, we used joint development agreements to deal with the economics of our manufacturing scale,” Schroeter said. “These partners essentially helped that scale issue.”

IBM Licenses  (Rather than Sells) IP to Partners

Fast forward to present day and IBM has fewer but more strategic joint development and technology licensing agreements. In these newer partnerships, IBM licenses — rather than sells — its source code to a technology or services partner “who assumes the development mission and invests to innovate and build new functionality, enhancing the value of the asset, which reinforces and support to our revenue stream,” Schroeter explained.

In that scenario, IBM retain the ownership of the IP and the revenue streams and pays a royalty to the partner for the development mission, he said. As the partner sells to their clients they pay a royalty back to IBM from the revenue they receive, he added.

“The benefits of these IP partnerships to us include the prioritization of our development resources, the continued innovation for our clients based on our high value assets and the creation of additional channels which can expand the client’s base,” Schroeter said.

IBM’s Goal: Monetize IP Through Partners

IBM’s ability to monetize IP directly relates to the amount of IP the company creates, he said. So far, the company has signed up about 19 IP partners over the past two years — including three in the company’s Q1 2017.

So far, IBM has licensed only about 1 percent of its software code base. And those deals are non-exclusive, which means there’s plenty of opportunity to monetize that 1 percent of code even more — along with the remain 99 percent of IBM’s code base.

What About Traditional Partners?

No doubt, IBM still wants to work with traditional VARs, MSPs, CSPs and integrators. The company’s PartnerWorld partner program enhancements, which debuted in January 2017, addressed those continued commitments.

But yesterday’s earnings call was telling. IBM didn’t say much — if anything — about traditional partners during the call. Instead, Schroeter drove home the need for more IP relationships and the associated revenues they’ll produce.

No doubt, IBM needs top-line revenue growth. The company’s revenues have declined in 20 consecutive quarters. Even as cloud, big data, mobile and security revenues increased, they haven’t grown enough to offset declines in the company’s core hardware, software and services revenues.

IP licensing to the rescue? So far, it’s too early to say. But Schroeter seems obsessed with the topic.

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