Apple–IBM: Powerful Economics Of The New Apps

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Pretty powerful stuff, this first wave of Apple-IBM apps under MobileFirst For iOS.

We took a close look at one app for the telecom industry – Field Tech – which, according to IBM, is: “Designed to help field technicians enhance the customer experience and reduce costs across the board.”

Consider these economics: As of 2012, there were over 250,000, telecommunications field techs in the U.S. according to the Bureau of Labor Statistics. Verizon and AT&T probably have over 50,000 in this job category – with an average salary of about $100,000 per year. This is just their W-2 wages.

The loading on labor for this group – benefits, social security, insurance, unemployment taxes, etc. – increases this cost by almost 40%. Including supervision, vehicles (custom van) and tools we are at a loaded cost per technician of almost $200K per year. (Note we have excluded any of the cost related to equipment or support systems or specific customer related hardware or software cost.)

This target group for this application costs these two firms alone, conservatively, over $10 billion a year. This is only 20 % of the total U.S. job category.

Even a 5% improvement in field productivity would have a $500 million a year benefit – to just the two companies – and would be an enterprise business case winner, and at this level could readily provide a scale business opportunity for IBM and Apple to share between the enterprise and themselves.

A key to making this app attractive is the fact that these field forces have a multitude of existing legacy systems to interact with, for example:

  • Service order
  • Customer records and billing
  • Work and time reporting
  • Maintenance tracking
  • Installation
  • Field force administration
  • Equipment inventory tracking and ordering

In addition there are the management, supervisory systems associated with each of these systems, just to name a few. These systems were developed with different software architectures, are from vastly different timeframes and vintages, but are part of the workflow activities of these workers.

As IBM has stated about enterprise mobile apps in general, “Mobile enterprise applications, are typically accessing information on the back end from legacy systems that the business has spent 15 to 20 years integrating together.”

The optimization that IBM references in their description of these MobileFirst applications is only possible with a knowledge base of the legacy systems and requires creating appropriate customization software, which is really how to interface with the legacy family of systems, extract the needed information and present it to iOS.

IBM is one of the few organizations with the knowledge to do this. In the case of many of the systems listed above, they were the creator, if not the developer, of system-to-system interfaces in the past. This customization activity is also a barrier to entry for most other system integrators.

The Apple role in this system integration at the technical worker level is clearly based on the attributes of the iOS/Yosemite platform:

  • Outstanding intuitive interfaces
  • Multiple device portability (iPhone, iPad, Macs) and synchronization
  • Standard APIs which link to a suite of native apps, i.e., location, documents, calendar, FaceTime, etc.

The likelihood is that this new approach has minimal cross elasticity with the existing Apple business, and IBM is the retailer.

For this initiative to grow into something of real significance to Apple and IBM, the two parties require:

  • Ability to scale
  • Demonstrated benefit-to-cost attractiveness
  • Competitive advantage

Scale. The parties will clearly focus on job functions that employ a high number of workers. The app we focused on – telco field tech – has some obvious, desirable characteristics for Apple and IBM. a) It embraces a large number of workers; b) the workers are relatively skilled and expensive to their enterprises and perform crucial functions; c) they have to interact with an extremely complex web of legacy applications.

IBM highlighted to us another category (see accompanying interview with Michael Gilfix of IBM), airline pilots, whose jobs may also share these characteristics – about 100,000 commercial pilots in the U.S., (and about 500,000 estimated worldwide) with median salaries of nearly $100,000, who also have to interact with complex legacy systems.

However, when we turn to one of the MobileFirst retail apps, Sales Assist, that helps in-store sales associates, this group represents a different type of profile. While BLS counts over 4 million retail sales workers, median annual salaries are not much over $20,000 – nor would they likely have to interact with quite the complex maze of legacy systems that the telco field techs or the pilots encounter.

Cost/Benefit Analysis. Our take is that for some categories of job functions, e.g., the telco field techs, cost savings alone will be compelling. For others, such as the retail sales associate, the app may not be a compelling offering for retailers based on cost savings alone, and we believe that Apple and IBM are likely to have to demonstrate other benefits. These would include factors such as productivity improvement and revenue enhancement.

Competition. If there is going to be direct competition for this job function-based approach to enterprise mobile apps, we would expect it to come from the usual suspects, e.g., Oracle, SAP, Accenture, Microsoft. The top tier has their Fortune 500 group of customers. They clearly have the resources and, in a number of cases, the intimate knowledge of the critical business processes, needed to do this type of professional services system design and integration work.

However, we believe that IBM, with Apple, is likely to be a very formidable competitor in this arena of function-based enterprise mobile cloud apps. IBM has indicated a pricing structure of bundled services based on a per subscriber model. The possibility of these IBM/Apple apps meeting our criteria: scale, high benefit to cost ratio, and competitive advantage – may be quite feasible.

The few customers who have commented indicated that our business case supposition is quite correct. The IBM challenge is in many ways the cost of customization.

It needs to be mentioned that these enterprise customers must of necessity value uniformity, as a best practice. If IBM wins one case, there is momentum to have all techs be similarly equipped and therefore, to win them all.

We have written before about how the Apple mystique is being embodied in a combination of contemporary hardware, wrapped in an amazingly intuitive software blanket. This creates an ecosystem for the end-user to interact with the Internet of Things. It appears that IBM is attempting to create for critical enterprise business processes and their high value worker corps a similar ecosystem.

We describe this as an IBM-centric middleware universe, connecting the iOS user interface – via a series of SaaS and PaaS offerings – Mobile First, BlueMix, Cloud Foundry, and the IaaS, of SoftLayer – to the back office, whether old or new (and whether IBM or non-IBM).

The open yet closed aspect of this strategy is quite attractive to IBM, and internal and external developers, as there is a large effort to create, with Cloud Foundry and BlueMix open source code linkages using definitive IBM toolkits.

These kits such as IBM’s Rational Test Workbench make it easier for developers, inside or outside the enterprise, to create application code – and note the simplifying logic, such as I/O configurations and analytics are IBM’s secret sauce.

This strategy also has a corporate governance side, which is the reinforcement of the role of the CIO, since all systems need an administrator

The impact that this strategy may have on the BYOD movement is not clear, however the work groups targeted tend today to be laptop oriented and these programs will most likely be iPad device focused.

The potential scale of this strategy, if successful, can materially affect IBM’s no revenue growth situation.

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Backround Photo by Naddsy [CC BY 2.0], via Wikimedia Commons
Podcast Narration by Gene Guerrero
Podcast Music “On the Ground” Kevin MacLeod ( Licensed under Creative Commons: By Attribution 3.0