from LSE JMOR : BTIG ON MONI/IBM
BTIG's Mark Palmer on why IBM (IBM) chose Monitise (MONI.L/MONIF) rather than build out a mobile platform and why Monitise's partnership with IBM is a "game changer:
During the six days following the announcement of Buy-rated Monitise's (AIM: MONI; OTC: MONIF) resourcing alliance with IBM (IBM – Not Rated) – a deal that we believe is a game-changer for MONIF – we have fielded a wide array of questions from investors about the tie-up. One recurring question is why IBM, a technology behemoth that spends over $6bn annually on research and development, couldn't have simply developed its own line of mobile money products.
Frankly, we believe the same question could be asked with regard to deep-pocketed MONIF partners Visa Inc. (V – Not Rated) and Visa Europe – which own 5.5% and 6.2% of the company – or MasterCard (MC – Not Rated). It's a question that is asked about virtually every bank with a sizeable internal technology operation for which MONIF has developed mobile banking applications. And it's a question that should be considered when assessing MONIF's potential to grasp the global mobile money opportunity that it is pursuing.
Indeed, when we initiated coverage of MONIF on May 20 we noted that the company's primary competitors were the IT departments of the banks and other companies whose business it was seeking. Many of these companies ask the question "build it ourselves, or outsource it to Monitise?" when considering the best path to the creation or upgrading of their mobile capabilities.
"The risk if you start dancing with these big bears is that they'll go do it themselves," MONIF co-CEO Alistair Lukies told the Financial Times on August 27. "We've been here with Visa and MasterCard ... and if IBM believe they could have done it themselves they would have built it."
While IBM certainly could have used its vast resources to develop its own versions of MONIF's "Bank Anywhere," "Pay Anyone" and "Buy Anything" mobile platforms, it simply made more sense for IBM lever off of MONIF's 10-plus years of developing mobile technology. So the partnership makes a great deal of sense for both sides. MONIF gains from IBM's global distribution and marketing prowess as it continues to focus on innovation – Forbes earlier this year ranked MONIF No. 3 among the world's most innovative growth companies – and implementing its technology with new and existing clients. And IBM gets access to MONIF's industry-leading technology and the benefits of its partner's decade-long head start in the space.
We believe the decisions of Visa Inc., Visa Europe and MasterCard to partner with MONIF may have been driven by a different impulse: the concern that MONIF could have contributed to the disruption of their business models through the development of innovative payment systems. And partnering with these payment giants simply made sense
All this talk about 'disruptive' really annoys me," MONIF CEO Alistair Lukies told Megabuyte. "Everyone talks about the disruptive plays, but who's going to come in and kill Visa? Who's going to come in and kill all the banks?
"I think business models of the future are going to be much more about cooperation. You might compete, but you also collaborate."
By collaborating with partners like Visa, Visa Europe and MasterCard, MONIF stands to receive a relatively small portion of the overall mobile-money revenue stream. Insofar as that revenue stream could be enormous – Visa has estimated that by 2020 more than half of payments in Europe will be made by mobile devices – MONI's small piece could translate into explosive growth.
"We're entering a phase of ecosystem economics where it's all about 10% of a big number is a lot better than 100% of nothing," Lukies told Internet Retailing.
Another topic that has inspired investor questions was the Board of Directors and leadership changes that MONIF announced yesterday. Mike Keyworth, who had served as Chief Information Officer since October 2005, stepped down from his role but will remain with the company as a technology advisor. Meanwhile, senior independent non-executive director David Dey and Visa Inc.-nominated director Victor Dahir will both be stepping down from MONIF's Board.
While some investors have questioned whether the changes were a sign of something awry at MONIF, we note that a key aspect of the company's tie-up with IBM was that teams from its U.K. development and integration business representing more than 20% of its global employee base, will be transferred to IBM. Consequently, the role of CIO appears to have been a casualty of the deal. Meanwhile, Dey and Dahir are 76 and 69, respectively.
