Services as products? What will IBM think of next?
When IBM recently announced two bundles of hardware, software and services, the company put its hype machine into overdrive, claiming that on the date of the announcement, the $626 billion services market "changes forever."
Please. Most of the time, press release language rolls off the backs of reporters like water off a duck, but this time, I feel compelled to take Big Blue to task.
What exactly changed on Sept. 26, 2006? Very little.
IBM announced two service "products:" Network Convergence Services Product, which can be used to analyze networks readiness to support data, voice and video, and IP Telephony Services Product, which can be used to build and run an IP telephony network.
IBM said it has 30 more such packages waiting in the wings, due for rollout in the next eight weeks. With those announcements pending, its a good time to look at just what IBM is doing, or not doing.
IBM and others have been looking for ways to capitalize on the time and trouble they take to solve one customers problems by re-using that expertise in other customer engagements.
Click hereto read about how IBM is bundling products and targeting smaller businesses.
There is undeniably an increase in activity in this regard (see my column Outsourcing & Services, June, 2, 2006), particularly for smaller enterprises that cant afford expensive custom services. But its not fundamentally different from what vendors have been doing in the computer industry since the first Univac was fired up.
Where I come from, a product is not a product unless it is for sale. To be for sale, it must carry a price. These two "products" dont have prices, as such. You get them when you buy the IBM service that goes with them. The service is priced according to whatever you can negotiate with IBM.
IBMs Marisa Viveros, worldwide director of converged communications, put it this way in a telephone interview: "Pricing is a work in progress now. It depends on use and varies country by country. It depends on the number of servers and users."
When pressed, she said it would be in the "low $100K" range.
Where I come from, customers ought to be able to purchase a product and deploy it themselves. But because these "products" are not sold separately from their package of hardware and services, customers cannot purchase and deploy them on their own.
"These are service products. You will be buying hardware, software and services. We will be deploying it," said Viveros.
Another measure of what is a product and what isnt is whether it can be accounted for as a capital expense. Again, the jurys out at this point. Viveros was not sure if customers can depreciate these "products" as they would with other IT capital product purchases.
Dave Komaromi, manager of technical services at Toronto law firm Fraser, Milner and Casgrain, said he has been working with IBM on a project to deploy video cameras to 300 of the firms desktops.
The work gave rise to the IP Telephony "product."
"Its not really software, its based on Ciscos platform. IBMs involvement started quite some time ago with the design of the network infrastructure to enable it to carry the network traffic," Komaromi said.
So what IBM is doing is taking the intellectual property in the form of software that it developed to help out one or more customers, and turning around and using it when IBM enters service engagements with other customers.
Its a bit like a carpenter cutting a jig to fashion one customers woodwork, then using the same jig to install the same kind of woodwork for another customer.
The carpenter would not be describing his jig as a "product" that the second customer "buys," even though the customer would benefit indirectly from it.
It would simply be a proprietary tool of the carpenter that he would re-use. The carpenter might be able to work faster and charge less than his competitors. Thats great. Thats what carpenters should do.
Indeed, IBMs Viveros is claiming the new approach, "gives us speed into market but also speed to service our clients, and increases our profitability."
Excellent. But we wouldnt say the carpenter had changed carpentry, and we ought not to say that IBM has changed services, either.
Executive Editor Stan Gibson can be reached at email@example.com.
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