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In Compaq Computers continued push to make services a bigger part of its future, the Houston company today, Aug. 20, will announce a partnership to make its consulting and integration services available to customers of computer retailer CDW Computer Centers.
CDW, which had sales of $3.8 billion in 2000, could provide a good fit for Compaq. Unlike Compaq, which has seen stagnant growth over the past several quarters, CDWs revenue and customer base are growing at a healthy clip. From 1999 to 2000, CDWs revenue jumped by 50 percent. And despite the current technology slowdown, CDWs second-quarter sales were 5 percent higher than the same quarter a year ago.
In addition, CDW is one of the largest retailers of Compaq hardware. It sells more Compaq servers than any other retailer, and “where those servers go, so goes services,” said Joe Kremer, CDWs vice president of marketing.
Kremer said the Compaq deal was motivated by increasing demand from CDWs customers, who have been asking for more custom solutions to their IT problems. He said Compaqs direct sales force is skilled at handling large accounts. By comparison, CDWs customers “are primarily small to midsize companies and the public sector. Markets we address are different from where Compaq has its greatest strengths,” he said. “Our customer bases are a good fit.”
While the deal could allow Compaq to provide services to a range of small and midsize businesses that it hasnt had before, David Bailey, a research analyst of Gerard Klauer Mattison & Co., doubts that the computer maker will be able to garner sizable revenue from the deal. “The benefits for Compaq are likely to be relatively modest,” said Bailey, who pointed out that because CDWs clients are small, Compaqs service contracts will be “smaller and potentially less profitable and harder to manage from a resource point of view.”
Michael Capellas, Compaqs chairman and CEO, has set a goal of growing the companys services arm by 40 percent per year. He also wants to see services revenue grow to 30 percent of Compaqs total sales within three years; services currently make up about 17 percent of Compaqs revenue.
But Compaq, which would not comment on the partnership with CDW, is competing with a number of other big IT players in the services arena. Gartner Dataquest has estimated that IT services will nearly double in value, to $1.1 trillion per year, by 2004. But to win a share of that new business, Compaq must contend with entrenched players such as Electronic Data Systems, Hewlett-Packard, IBM Global Services and others. In addition, Compaq could end up competing for customers at CDW, which also has services agreements with DecisionOne, IBM, Imagecom, PCC, ValCom and Volt Telecom Group.
Eric Rocco, Dataquests vice president of services research, believes that Compaq will be more nimble than its competitors. “Compaq is more able to go to lower tier of customers and do it more aggressively than some of the bigger players out there,” he said. “Theres never been a question of doubting Compaqs strategy of growing their services business – they just need to increase the number of customers they have. This CDW deal could be a big win for Compaq.”
In addition, Rocco said that by using CDWs sales force, Compaqs cost of acquiring new customers will be relatively low – a factor that should increase the profitability of the services Compaq delivers.
While Compaq may gain some new clients, it appears that CDW and its customers will likely be the biggest winners from the deal. Instead of having to deal with several service providers, I-managers will be able to deal with a single account manager at CDW who will also handle billing and other issues. I-managers will “just deal with us. They will have one account manager and one credit line to get things done. Its a way to save time and money and just deal with one person,” Kremer said.