Service charge?

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This article appeared in the 23rd June, 2008 issue of CRN magazine.

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With Hewlett-Packard Co.’s pending $13.9 billion acquisition of EDS Corp., the vendor is poised to become an instant player in the global IT services arena. But integrating an army of some 210,000 global service employees, the combined services rosters of HP and EDS, with HP’s enterprise-oriented service providers and then avoiding the inevitable conflicts between EDS direct and the channel is a challenge solution providers say the vendor should not underestimate.

“It’s a good move for HP because HP has been sitting on the sidelines while IBM’s global services has been going gangbusters,” said Mark Melillo, CEO of Melillo Consulting, an HP enterprise partner in Somerset, New Jersey. “But I do have some concerns with more conflict with HP in accounts around services. HP is very direct-centric.”

He noted that HP has more sales reps and that HP software reps now have services quotas, which has fueled a tendency to take more services deals direct, he said.

Those concerns are the same ones voiced by IBM Corp. business partners over the years as they have struggled to team with the vendor’s global services organisation. IBM’s global services has sometimes poached or attempted an incursion into accounts already being served by business partners.

The problem for IBM, and one that must be avoided by HP, is that IBM services often had no idea who the business partners were and what services capabilities they brought to the table.

Everything Channel (CRN U.S), in a conference call with HP CEO Mark Hurd and EDS CEO Ron Rittenmeyer following the announcement of the pending acquisition, asked what would be the impact on HP service-authorised enterprise partners and
how they would integrate with the new EDS services organisation.

“It’s good for HP so I think it will be good for our channel partners,” said Hurd. “Our commitment to channel partners is in the DNA of HP. I don’t think there’s going to be anything but goodness in our outsourcing business today, and what we do in Consulting and Integration, we try and make it very complimentary with our partners, so I don’t [see] anything but goodness.”

HP, for its part, has pursued a services strategy that pushes midmarket services maintenance accounts to the channel with the hopes that solution providers would provide better coverage in both services and HP product sales to those midmarket customers.

But those services tend to be low-end, break-fix, not the high-margin consulting and integration services many HP enterprise partners aspire to.

As one HP solution provider, who asked not to be identified, noted, “All the heavy lifting is in the midmarket. Many of us are already selling services into enterprise accounts and HP needs to deal with that.”

But some solution providers believe there is enough stratification between the EDS services business and those engagements the channel will pursue to avoid most conflicts.

“Without knowing the terms or details, I think I would be encouraged,” said Dave Butler, president of Enterprise Computing Solutions, an HP enterprise solution provider. “When IBM bought PricewaterhouseCoopers a few years ago, it was a shot in the arm for professional services. Today, we see IBM out there promoting its strategic services. My hope is that this would be an accelerator for HP to get to the next level of services. HP has been pursuing this for years.”

This should not result in more competition to the channel, “Assuming that HP can work out the channel issues,” Butler said.

Larry Holzenthaler, executive vice president of sales and marketing at Total Tec Systems Inc., an HP enterprise solution provider, agreed that HP has a good shot at avoiding services conflicts. “It’s good for HP to have a strong professional services practice to support its hardware business with the same model as IBM’s,” he said. “We really operate for the most part in a different space than the C and I [Consulting and Integration] group does. We never see EDS and we never see C and I.”

But working out the channel issues could be a challenge. Mont Phelps, president and CEO of NWN Corp., a HP solution provider, noted that the EDS/HP merger creates an IBM look-alike. “If they are modeling themselves after IBM, IBM has not been the greatest partner; they tend to step on us,” he said.

He said that today he sees little competition from EDS, but notes that he does bring HP’s services organisation into some of his accounts as an enterprise services partner. As EDS morphs into HP’s services organisation and solution providers tap EDS’ services resources, he’s concerned about bringing a potential competitor into his accounts.

Other solution providers shared his concerns. Don Richie, CEO of Sequel Data Systems Inc., an HP enterprise solution provider in Austin, Texas, noted that EDS sells products as well as services, creating a potential conflict with HP’s existing VARs. “Partners need to hold on to their seats and guard their customers,” he said. “I guess now HP is a full-fledged VAR [with the EDS acquisition]. We will keep doing what we do best, but this certainly is not good news for the partner community.”

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