With news on Wednesday that IBM would
acquire upstart mainframe challenger Platform Solutions Inc., we checked in for an update with Bart Schachter, a managing partner with Blueprint Ventures, which helped PSI spinout of Fujitsu Ltd.-owned Amdahl Corp. back in 1999. It's a story
we chronicled last year in Corporate Dealmaker.
While terms were not disclosed, the deal provides a happy exit for PSI investors, including Intel Capital, Microsoft Corp. and Blueprint. But the happy ending didn't come without some legal bloodletting on both sides. IBM filed suit against PSI in 2006 for patent infringement and breach of contract. PSI countered with a lawsuit of its own accusing its larger rival of antitrust violations, unfair competition and business torts. According to Schachter, it was the tempestuous relationship of the past 18 months that led to the deal. "The conversation started to turn in the past few months," says Schachter, "when IBM realized what PSI had."
What PSI had was a smaller, less expensive Intel-powered mainframe that allowed customers to simultaneously run multiple operating systems. Something IBM's mainframe couldn't do. PSI also had a management team stacked with former long-time IBMers, including chief executive Michael Maulick, who spent 22 years at Big Blue, including time leading mainframe design and development.
Now, IBM buys startups all the time. You have to wonder why - if it were interested in PSI's technology or nervous about losing customers to the startup - it didn't just scoop up PSI in the first place. Why all the legal drama? While he doesn't know for sure, Schachter says it's not unusual for "the legal teams in a corporation to get ahead of the business team." In other words, the lawsuits may have started flying before the business teams at either company were able to address strategic options.
It's also true that while PSI the company wasn't much different than the hundreds of other startups IBM acquires or partners with, its technology certainly was. PSI was attempting to take on IBM in the very lucrative and very large mainframe space, turf that IBM dominated and had rarely been challenged on. And, it's possible that with the many ties between the PSI leadership team and IBM's mainframe division, personal relationships may have gotten in the way of a deal early on.
Speaking of relationships, it's not clear what IBM plans to do with PSI's technology. The company said PSI employees will become part of IBM's System and Technology Group. But what of PSI's smaller mainframes? IBM could further develop and market them, or it could let the technology simply fade away, clearing the mainframe field of any real competitors - which, when you think about it, was likely the point of its legal challenges in the first place. -
Suzanne Stevens
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I seriously doubt IBM was worried about losing customers to PSI. With IBM's patent infringement law suits hanging around PSI's neck, no enterprise would ever purchase their products.
I think it was a PSI fire sale, especially with no dollar figure ever having been made public on the sale. Trust me if the VC had made money they would be shouting from the roof tops their sale price!
Typical VC spin story!