IBM Working To Be Hip With Twitter

Source: Twitter press release

IBM and Twitter announced a partnership where Twitter's data will be utilized in cloud-based analytics, customer engagement platforms and consulting services. It makes total sense for these two companies to partner since Twitter has a treasure trove of data and IBM has the chops, including IBM Watson and Bluemix platform-as-a-service, to make use of it. IBM also has the industry expertise to develop specific solutions using Twitter data.

From Twitter's blog 'From a data perspective, Twitter represents an enormous public archive of human thought that captures the ideas, opinions and debates taking place around the world on almost any topic at any moment in time. While companies have long listened to what their customers are saying on Twitter, complex enterprise decisions often require input from a lot of different systems. IBM's expertise is in integrating complex systems and data to make better decisions.'

It also included 'And to ensure that companies maximize the value of this new data set, IBM and Twitter will work together on a unique collection of enterprise solutions that include Twitter data in IBM's analytics solutions.'

This could be material to Twitter's Data Licensing revenue stream

Twitter generated $70 million in data licensing revenue in 2013 and has generated $100 million in the first three quarters this year. The company is on track to hit $140 million which would be double last year's revenue for this segment but it would still be just over 10% of total revenue.

While it would take 2 to 3 years to get data licensing to the mid-teens share of total revenue the incremental revenue may have very good margins (significantly above Twitter's 70% gross margin) since it is leveraging data it has already stored.

For every $100 million in revenue at 85% gross margin this would add about $0.09 in EPS. For a company with estimated EPS of $0.38 in 2015 this would be material to the bottom line. However it should take a couple of years or longer to generate this uptick in revenue.

Also keep in mind that while IBM will train 'tens of thousands of IBM Global Business Services consultants' don't get carried away that Twitter's sales force will have thousands of full-time partners. While I haven't worked at IBM since 1997 (but was in sales for over a decade) there will be some consultants who realize the Twitter solution will help them sell more IBM services. I suspect most will be happy to know it is there but won't be able to leverage it since it wouldn't be applicable to their clients in a big enough way to warrant spending a lot of time on it.

Makes sense for IBM but not incremental on its own

IBM needs these types of partnerships and solutions to tap into new solutions, which means more consulting, software and hopefully hardware. This feels similar to the Apple iPad partnershi p but also like it I don't think it will move IBM's financial needle enough to be noticed. At almost $100 billion in revenue $100 million in incremental revenue is 0.1%. If the Twitter partnership winds up gaining more traction than this it will materially help Twitter, not so much IBM.

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