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IBM to Invest $3 Billion in Sensor-Data Unit

03/31/2015 | 12:16am US/Eastern
By Don Clark 

International Business Machines Corp. plans to invest $3 billion over four years on a new business helping customers gather and analyze the flood of data from sensor-equipped devices and smartphones.

The computing giant is announcing the effort Tuesday along with an alliance with the Weather Company, which owns the Weather Channel and other information providers. The two companies plan jointly to exploit data about weather conditions to help businesses make better decisions.

IBM's move is the latest in a barrage of announcements by companies aiming to exploit the so-called Internet of Things, a catch-all term for computing and communications capability embedded in a broad range of hardware in homes, offices, factories and transportation networks.

Big Blue, which has struggled lately with slowing revenue growth in older software and services businesses, has been pushing sales of its Watson software and other programs that analyze business data. Now it is competing to manage vast streams of data from Internet-connected cars, machine tools, smart home appliances, jet engines, and other sources.

The company said a centerpiece of its new business unit is a collection of online software called IoT Foundation that runs on IBM's existing cloud services and allows customers and partners to create new applications and enhance existing ones with real-time data and analysis.

The company faces competition from various angles, from large companies such as General Electric Co., Microsoft Corp. and Cisco Systems Inc. to startups like Ayla Networks Inc. and PTC Inc. Challenges also are emerging from software companies that specialize in particular industry sectors, such as manufacturing or finance.

IBM is betting that correlating dissimilar kinds of data will yield the highest value. "It's essential to federate information from multiple sources," said Bob Picciano, IBM's senior vice president of analytics.

IBM has already incorporated that philosophy in a deal announced last year with Twitter Inc. The two companies are working jointly to help businesses sift through and mine the stream of tweets from customers, partners and others.

The arrangement with Weather Co. is another case in point. The company, which is based in Atlanta and owned by a consortium made up of Comcast Corp.'s NBCUniversal and private equity firms Blackstone Group and Bain Capital, has properties that include Weather.com, Weather Underground and Intellicast.com.

David Kenny, its chairman and CEO, said his company serves up 700,000 weather forecasts a second. It already sells data to a range of customers in agriculture, transportation and other industries that rely on weather.

But the opportunities have expanded, Mr. Kenny said, as weather sensors installed in many more places have contributed to more timely, localized forecasts. The added detail helps farmers predict more precisely, for example, where hail could impact their fields, Mr. Kenny said.

The Weather Company is turning to IBM, he said, because of its software expertise and relationships with customers in many industries. Under the alliance, the two companies plan to develop applications that use weather data to help companies in fields like insurance, energy, retail and logistics.

The goal is not just selling customers a license to data "but selling them a weather-based solution," Mr. Kenny said.

His company also intends to shift more of its software applications over time to run on IBM's cloud computing operations.

IBM said it already has customers for IoT Foundation and related offerings. They include engine maker Cummins Inc. and United Technologies Corp.'s Pratt & Whitney unit, which use data generated by their engines to help head off breakdowns, the company said.

David Friedman, co-founder and CEO of Ayla Networks, which offers a competing Internet of Things platform, said one challenge will come from companies like Amazon.com Inc. and Google Inc. Those companies provide cloud computing services that have put price pressure on other providers, including the IBM SoftLayer services associated with Big Blue's new Internet of Things business unit.

But Mr. Friedman agrees with IBM's strategy of trying to deliver a platform that supports multiple industries, and more generally with its bet on what could become a big business. "If you are not doing what they are doing," he said, "the world is going to look a little painful for you in a few years."

Write to Don Clark at don.clark@wsj.com

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