Business-to-business software makers are paring down their professional-services divisions, opening new opportunities for service partners.
In a slew of earnings warnings from B2B companies last week, the most dire came from Ariba, whose top executives scuttled an acquisition after announcing revenues would only be $90 million—half of what the company predicted.
In a stunning admission, Ariba chairman and CEO Keith Krach says the company was blindsided. "We were surprised by the magnitude of the drop in the last few days of the quarter," says Krach.
In response, Ariba canceled its planned acquisition of Agile Software, which was set to form the core of Aribas new value chain management initiative.
A half-dozen more companies issued warnings in varying degrees of distress. Art Technology Group warned its revenues would be more than a third off the $70 million analysts expected,while webMethods predicted revenues at about $60 million, down from the $67 million analysts expected.
Ariba, i2 Technologies and BroadVision each said they would lay off employees as they search for ways to cut costs. Ariba hinted the layoffs would come from its professional-services division. "Aribas announcement that cuts would primarily come from nonproduct areas leads you to believe they will be in the services side of business that they launched last year," says Barbara Reilly, VP at Gartner Group.
Others may soon follow suit. "If the growth is not there, a lot of these companies will back off professional services," says John Bermudez, senior VP of research at AMR Research. In doing so, that means these companies will have to depend more on integration partners to influence and implement their products.
In addition, other issues are driving them to do so, says Frank Ingari, chairman of Wheelhouse Corp., a marketing infrastructure services provider. Changes in SEC reporting rules, for example, put at a disadvantage companies recording software license and services fees together, Ingari says. The result: "Enterprise software makers are getting out of the services business in a big way," he says.
The one exception may be Commerce One. The company, which acquired integrator AppNet two years ago, warned revenues would be about $170 million, 15 percent lower than expected. The company said about $70 million comes from software license fees while $100 million were derived from services fees. And when discussing possible cost reductions, Peter Pervere, senior VP and CFO, said the company isnt going to make cuts in its services division.