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Why IBM is Keen on the Digital Agency and Marketing Space

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Increased ad spending for IBM

In the prior part of this series, we discussed IBM’s (IBM) recent acquisitions in 2016. It came as a surprise when IBM, within a span of one week in 2016, made three acquisitions that were strategically planned to boost its Interactive Experience (or iX). Its digital agency has been in existence for more than 20 years.

If we look at IBM’s recent acquisitions—namely Ecx.io, Aperto, and Resource/Ammirati—this seems little unusual on the surface. After all, IBM has openly stated that it intends to focus chiefly on strategic imperatives that refer to IBM’s investments and initiatives in cloud, analytics, mobile, social, and security technologies. Strategic imperatives grew 24% to $28.9 billion in constant currency terms in fiscal 4Q15.

Later in this series, we will see how these acquisitions could help IBM in improving its Strategic Imperatives. A likely reason for IBM’s increased interest in this space could be attributed to its expectation of increased ad spending.

According to a report by eMarketer, the US and China (FXI) should account for ~62% of global mobile ad spending in 2016, as the above chart indicates. Moreover, another eMarketer report stated that the total ad spending in the US on the digital format is expected to top ~$82 billion by 2018.

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Creative and digital marketing

IBM is not the only company in the IT sector that is keen on the digital agency and marketing space. Accenture is also active in adding these types of companies under its corporate umbrella. Accenture (ACN) recently acquired Boomerang Pharmaceutical Communications in December 2015. Boomerang is a Switzerland-based online advertising agency, which is focused on biotech, pharmaceuticals, and medical device customers.

Apart from its acquisitions, IBM has entered into a partnership with Facebook (FB) to develop improved marketing solutions to enhance its ad targeting. In 2014, IBM acquired Silverpop, a marketing automation software firm intended to strengthen and expand its reach within the digital marketing space.

Investors who wish to gain exposure to IBM can consider investing in the SPDR S&P 500 ETF (SPY). SPY has an exposure of 8.7% to application software, and it invests ~0.7% of its holdings in IBM.

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